Patrick McCoy, Director of Finance
November 26, 2012

MTA’s Derivatives Program Allows the Use of Interest Rate
Swaps and Options and Fuel Hedges
• Synthetic Fixed Rate Debt: To achieve a lower net cost of borrowing. (Floating to Fixed Rate Swaps)
• Interest Rate Hedges: To protect against the potential of rising interest rates by capping exposure.
• Fuel Hedges: To establish more certainty and stability in budgeting the future price of commodities used by MTA.
Speculative Interest Rate and/or Fuel Hedges are not permitted.
1

Synthetic Fixed Rate Debt Exposure is Less than 10% of Overall Debt 1
Unhedged Variable
$2.3 Bn
7.4%
Hedged Variable:
Synthetic Fixed Rate
$2.7 Bn
8.5%
Traditional Fixed
$26.4 Bn
84.1%
Notes:
1 As of September 30, 2012 and excludes State Service Contract Bonds.
3

• Synthetic fixed rate debt costs less than non-callable traditional fixed rate debt at the time of issuance.
• On an annual basis, MTA swap portfolio savings are estimated at approximately $19.6 million, relative to the cost of fixed rate bonds, at the time of issuance.
• The weighted average cost of the synthetic fixed portfolio is
3.77%. vs. 4.40% for traditional fixed-rate bonds - including recent 2012 refinancings.
• Synthetic fixed rate exposure continues to be manageable at
8.5% of total outstanding debt.
• Mark-to-Market values do not impact capital or operating budgeting.
4

Synthetic Fixed Rate Cost of Capital Compares
Favorably to Traditional Fixed Rate Debt
*Excludes 58bp of variable rate fees.
Average Budgeted
Cost of All Debt
4.30%
Total
Unhedged
Variable
4.00%*
Synthetic
Fixed
3.77%*
5

In 2012 MTA Reduced Exposure to a Recently
Downgraded Counterparty
•
Counterparty Risk Mitigation Strategy
– Transaction 1 - As a result of a downgrade of the ratings relevant to Citigroup
Financial Products Inc. (CFP) to Baa2 by Moodys, TBTA competitively bid a termination of the two affected TBTA general revenue transactions.
• $88.50 million 5.777% synthetic fixed swap 2 year remaining average life.
• $88.60 million 5.777% synthetic fixed swap 2 year remaining average life.
• Total termination payment: $19,393,500 plus accrued interest -- 95% of existing Mark-to-Market.
• Total expected PV debt service savings of 8.50%.
• Underlying bonds remain in a variable rate mode.
6

In 2012 MTA Reduced Exposure to a Recently
Downgraded Counterparty
• Counterparty Risk Mitigation Strategy (cont.)
–
Transaction 2 - As a result of the favorable economics of transaction 1,
TBTA negotiated the termination of the remaining two TBTA subordinate transactions with CFP.
• $40.40 million 6.07% synthetic fixed swap 3 year remaining average life.
• $89.85 million 6.07% synthetic fixed swap 3 year remaining average life.
• Total termination payment: $22,318,000 plus accrued interest -- 89% of existing Mark-to-Market.
• Total expected PV debt service savings of 7.75%.
• Underlying bonds remain in a variable rate mode.
• Realized Objective
• MTA exposure to Citigroup Financial Products has been eliminated.
• Increased LOC capacity due to reducing Citigroup exposure to MTA.
7

Outstanding Swaps Aggregated by Counterparty
Swap Counterparty
Ratings
Moody's/S&P/Fitch
2011 2012
(1)
Notional Amount
($000)
2011 2012
(1)
% of Total
Notional
2011 2012
(1)
2011
MTM
2012
(1)
AIG Financial Products Corp.
Ambac Financial Services, L.P.
BNP Paribas North America, Inc.
Citibank, N.A.
Citigroup Financial Products Inc.
JPMorgan Chase Bank
Morgan Stanley Capital Services Inc.
The Bank of New York Mellon
UBS AG
Baa1/A-/BBB Baa1/A-/BBB+
WR/NR/NR
Aa2/AA/AA-
WR/NR/NR
A2/AA-/A+
A1/A+/A+
A3/A/A+
Aa1/AA-/AA-
A2/A/A
Aaa/AA-/AA-
Aa3/A+/A+
A3/A/A
Baa2/A-/A
Aa3/A+/A+
Baa1/A-/A
Aa1/AA-/AA-
A2/A/A
Total
100,000
40,700
196,400
100,000 2
20,900 1
195,600 5
196,400
663,750
195,600 5
-0(2)(3) 16
902,050 885,300 22
440,000 440,000 11
-0338,530
(2)
-0-
1,629,800 840,625
(4)
39
4,169,100 3,016,555
3
1
6
(26,239)
(1,398)
(40,571)
6 (40,571)
-0(132,215)
29 (251,390)
15 (31,800)
11 -0-
28 (190,084)
(714,267)
(27,948)
(357)
(44,365)
(44,365)
-0-
(274,245)
(16,677)
(79,596)
(201,923)
(689,476)
(1) Data as of September 30, 2012. Totals may not add due to rounding.
(2) Novated $338,530 in October 27, 2011 to Bank of New York Mellon.
(3) Terminated $177,100 on September13,2012 and $130,250 on September 26, 2012.
(4) $785,600 Basis swap matured on January 1,2012.
8

MTA Hedges a Portion of its Fuel Costs to Provide
Budgetary Certainty in its Fuel Expense Category
• MTA is currently hedging approximately 50% of its annual ultra-low sulfur diesel
(“ULSD”) expenditures pursuant to Prior Board Authorization.
• Current transactions are structured as laddered 18-month strips that are cash settled monthly to provide current and near term budget certainty.
•
Freed up capacity is recycled on a monthly basis.
• Hedges are procured through a competitive bidding process.
•
In July 2012 MTA removed Bank of America/Merrill Lynch
(“BAML”) from its approved list of counterparties and is actively working to approve replacements. Staff is not seeking to terminate any existing hedges with BAML as counterparty exposure is manageable.
•
Deutsche Bank, and Goldman Sachs & Co. (via J. Aron & Company) remain as approved Counterparties.
10

MTA will Expand its Fuel Hedging Program to Increase
2 Year Budgetary Certainty
• On September 27 2012, MTA Board approved an increase of $100 million in the fuel hedge program bringing the total size to $200 million.
• MTA will begin to extend the duration of hedging fuel expenses expected to occur over the next 24 months.
• Targeted hedge amounts will equal 50% of gallons projected to be purchased over the next 12 months with declining hedge amounts over the remaining period.
• Target modifications may occur based on market conditions.
• On a monthly rolling basis freed up capacity will be allocated over the next 24 months and will provide for a 50% hedge of the next 12 months on an ongoing basis.
• The increased capacity will be layered in over the next few quarters.
11

MTA Hedges 50% of Fuel Purchases to Reduce Budgetary Volatility
As The Program Has Minimal Impact on Fuel Costs
12

MTA’s Fuel Hedge Program is Successful in Reducing Price Uncertainty
Price Volatility
6,0%
3,0%
0,0%
-3,0%
-6,0%
-9,0%
Unhedged Price Volatility
Notes: Data as of September 30, 2012. Totals may not add due to rounding.
Hedged Price Volatility
13

Fuel Hedges Outstanding By CounterParty
Ultra-Low Sulfur Diesel
Rating
A2/A+/A+ Deutsche Bank
Bank of America
Goldman Sachs (JAron)
Total
Baa2/A-/A
A3/A-/A
Gallons
Hedged
$2,490,276
17,829,319
Dollars
Hedged MTM
$8,000,012 ($409,960)
52,111,091 2,864,778
10,882,223
$ 31,201,819
32,316,659 792,991
$ 92,427,762 $ 3,247,809
Notes: Data as of September 30, 2012. Totals may not add due to rounding.
14

Appendix

Interest Rate Derivative Contracts Specifics
Issue
Transportation Revenue
Bond Series
2002D-2
2002G-1
2005D & 2005E
2011B
2012B
Total
Dedicated Tax Fund
2002B
2008A
2008B
Bridges and Tunnels
– General Revenue
2002F
2002F
2003B
2005A
Total
2005B
Bridges and Tunnels – Subordinate
2000AB (a)
Total
Total
2 Broadway
2004A
Total
Par Amount
($Mn)
Fixed Rate Paid
$200.00
200.00
400.00
6.92
359.45
$1,166.37
$311.80
338.53
128.20
$778.53
20.90
195.50
0.10
23.76
586.80
$827.06
$130.25
$130.25
$114.350
$114.350
(%)
5.404
3.076
3.076
3.092
3.076
4.450%
3.092
3.561
3.092
3.563
4.060%
3.316
4.060
6.080%
3.092%
Variable Rate Index
Received Maturity Date
MTM Values
($Mn)
69% 1-Month LIBOR November 1, 2032
Lesser of Actual Bond Rate or January 1, 2030
67% 1-Month LIBOR-45 bp
67% 1-Month LIBOR November 1, 2035
Lesser of Actual Bond Rate or January 1, 2030
67% 1-Month LIBOR-45 bp
67% 1-Month LIBOR November 1, 2032
$(91.782)
$(48.951)
(111.791)
(1.692)
(113.175)
$(367.391)
SIFMA September 1, 2013 $(11.818)
67% 1-Month LIBOR November 1, 2031 (79.596)
SIFMA September 1, 2031 (4.859)
$ (96.503)
SIFMA January 1, 2013
67% 1-Month LIBOR January 1, 2032
67% 1-Month LIBOR January 1, 2032
Lesser of Actual Bond Rate or January 1, 2019
67% 1-Month LIBOR-45 bp
67% 1M LBR January 2, 2032
(0.357)
(44.342)
(0.023)
(7.595)
(133.094)
$(185.411)
SIFMA
– 15 bp January 1, 2019
$(24.923)
$(24.916)
Lesser of Actual Bond Rate January 1, 2030 or 67% 1-Month LIBOR - 45 bp
$(15.477)
$(15.477)
Notes: Data as of September 30, 2012. Totals may not add due to rounding.
(a) MTA’s only “off-market” swaps were competitively bid in 1999 and generated over $27 million in proceeds for the capital program.
16