Rating agency downgrades outlook on Maryland Transportation Authority bonds

by Bryan P. Sears, Maryland Matters
May 3, 2025

A key bond rating agency has issued a negative outlook for outstanding revenue bonds issued by the Maryland Transportation Authority, amid uncertainty surrounding the reconstruction of the Francis Scott Key Bridge.

Standard & Poor’s reaffirmed the authority’s AA- bond rating, but in an April 25 report downgraded its outlook from stable to negative and warned of the potential for future changes.

“The outlook revision to negative reflects our view that there is at least a one-in-three chance we could lower the rating within the two-year outlook if potential project cost escalations and uncertain timing of future federal reimbursements weaken the authority’s ability to sustain financial metrics at levels comparable with those of peers as it finances the reconstruction of the Francis Scott Key Bridge and its $5.1 billion capital improvement program,” S&P Global Ratings credit analyst Andrew Stafford said in a statement.

The Standard & Poor’s announcement warned: “We could lower the rating if actual financial performance trends negatively, and is materially weaker than currently forecast due to construction cost escalations, project delays, or softening demand.”

“We do not anticipate raising the rating over the two-year outlook period, given MDTA’s relatively high debt burden and additional borrowing plans,” the credit rating agency said.

Currently, the authority has $2.1 billion in outstanding debt. In fiscal 2026, which begins in July, that amount is expected to “increase significantly” to $2.6 billion, according to an analysis by the Department of Legislative Services.

Outstanding debt is projected to increase to $3.3 billion in fiscal 2027, before peaking at $3.8 billion in fiscal years 2029 and 2030 — an amount just under the authority’s statutory borrowing cap, according to the legislative analysis from February.

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Bond ratings determine the interest rate governments pay on money borrowed for buildings, roads and other infrastructure projects. Lower ratings ultimately cost governments – and taxpayers —more.

Revenue bonds issued by the authority are separate from the state’s general obligation bond borrowing.

A year ago, Moody’s reaffirmed the state’s coveted AAA rating on general obligation bonds but downgraded its outlook from stable to negative, citing concerns about looming structural deficits driven by programs including the Blueprint for Maryland’s Future education reforms.

In March, Moody’s issued another report citing concerns about cuts to federal employment and other concerns. The firm said Maryland is at greatest risk from those cuts.

Moody’s, along with Standard & Poor’s and Fitch are all expected to meet with state officials this month. From those meetings, the three agencies will issue updated annual bond ratings in advance of a scheduled June bond sale.

There are rumblings in corners of Annapolis about a potential downgrade of the state’s creditworthiness from one or more of the rating agencies.

The state has held the coveted “triple, triple-A” rating for more than three decades. Maryland got its first triple-A rating from Standard & Poor’s in 1961, followed by Moody’s 12 years later and Fitch in 1993.

The authority operates eight toll facilities including the Fort McHenry and Harbor tunnels, the Bay Bridge, the Gov. Harry W. Nice/Sen. Thomas “Mac” Middleton Bridge and the Intercounty Connector. It also operated the Key Bridge and is in charge of its replacement.

Tolls charged by the authority at those facilities are pledged to repay its borrowing.

A Maryland Transportation Authority spokesperson, in an emailed statement said the agency will continue to meet its debt payment obligations.

“The Maryland Transportation Authority (MDTA) recognizes that the negative ratings outlook reflects the uncertainty associated with a mega project the size of the Key Bridge Rebuild and uncertain timing of when federal funding will be received,” the spokesperson wrote. “Despite the loss of the Key Bridge and temporary loss of associated revenues, the MDTA expects to remain in compliance with all board directed financial policies and trust agreement covenants.”

The negative outlook comes a year after the catastrophic collapse of the bridge. The span over the Patapsco collapsed after a pier was struck by the Dali, a fully laden 984-foot cargo vessel that lost power. Six people working on the bridge died in the incident.

The allision remains under investigation by the National Transportation Safety Board.

“The State of Maryland continues to pursue the DALI’s owner and manager for all the damages caused by their negligence and incompetence – including the cost to reconstruct the Francis Scott Key Bridge – so that the parties responsible for this tragedy pay for the damages they caused,” the MdTA spokesperson wrote. “The American Relief Act, 2025, provides that if any additional funds are required to build the new bridge beyond the compensation paid by the DALI, the federal government will provide that funding.”

Those federal lawsuits are complicated and ongoing. Final resolution could take years of litigation.

Standard and Poor’s issued a bond opinion immediately following the incident. In that opinion, the bond rating agency said “disruption and damage from the recent collapse of the Francis Scott Key Bridge … is not expected to have immediate credit implications for its ratings” on the authority, Baltimore City or the state.

“However, the long-term financial impact, particularly for MDTA, will likely be unknown for some time,” according to the Standard & Poor’s 2024 opinion.

Moody’s ratings issued its own updated opinion that same month. In it, the agency downgraded the authority’s outlook from stable to negative on $2.2 billion in outstanding debt.

The company cited “uncertainty around the Francis Scott Key Bridge’s … replacement project’s costs, including their funding, and timing. Any negative impact from the replacement project would be on top of financial metrics that were expected to narrow from capital investments prior to the loss of the bridge.”

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A replacement is expected to cost at least $1.7 billion. Officials hope to complete the new span by 2028.

State officials continue to rely on promises of full federal funding for a replacement made by then-President Joseph Biden (D) just hours after the span collapsed. But that promise is less certain since the election of President Donald Trump (R).

Trump has made good on his campaign promise to slash government spending and employment. In March, he said he would block plans for a new FBI headquarters in Greenbelt — a project Gov. Wes Moore and others lauded as an economic boon to the state and Prince George’s County.

Trump’s election also cast doubt on the likelihood of federal funding for an east-west Red Line transit project in Baltimore. Moore made construction of the line a signature campaign promise.

For now, the authority said it does not expect to speed up a projected toll increase, though one is coming.

“MDTA’s current financial plan indicates that toll increases are not needed before FY 2028. This action by S&P is not likely to change the projected timing of that need,” the agency spokesperson wrote.

In January, a Department of Legislative Services analysis highlighted the authority’s own projection of “fiscal challenges on the horizon,” including increases in outstanding debt between fiscal 2026 and 2030. That legislative review noted “the need for action, such as implementing a toll increase to maintain the debt service coverage ratio by fiscal 2028.”

The projected need for an increase is a year sooner than the timeline projected in a 2024 analysis.

“Compared to the prior forecast, the current forecast has significant forecasted increases in capital expenditures related to the rebuilding of the Francis Scott Key Bridge,” analysts wrote in their review.

Maryland Matters is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Maryland Matters maintains editorial independence. Contact Editor Steve Crane for questions: editor@marylandmatters.org.