Alameda Corridor seeks debt relief on MoodyÆs downgrade
Moody's Investor Services on Wednesday downgraded its credit rating for bonds issued by the Alameda Corridor Transportation Authority (ACTA) and put the agency on a watch list for possible further downgrade because cargo revenue has failed to keep up with mounting debt service levels.
ACTA has $1.7 billion of outstanding debt on its books that it is scheduled to pay off by 2037.
The Alameda Corridor is a 20-mile freight rail expressway used to rapidly shuttle containers from the ports of Long Beach and Los Angeles to the transcontinental rail yards near downtown Los Angeles. The $2.4 billion project, which opened in April 2002, was built to eliminate grade crossings and allow the free flow of trade without disrupting street traffic. It handles 36 percent of the total daily TEU volume of the two ports.
The credit rating agency said the downgrade of ACTA's senior and subordinate debt to A3 from A2 and Baa1 from A3 reflected the decline in cargo levels and operating revenue, which have raised concern about whether it has sufficient cash flow to make principal and interest payments.
The Alameda Corridor's fortunes are closely tied to the two Southern California ports. Container volume at the ports has skidded 26 percent since the peak of 15.8 million TEUs in 2006. Last year container volume was about 11.7 million TEUs, which represented a drop of 2.5 million TEUs from 2008. The amount of loss is greater than the entire throughput of most U.S. ports.
Monthly cargo volume at the ports bottomed out last February at 732,000 TEUs and improved during the last six months of the year, averaging 1.05 million TEUs per month.
The worldwide recession has had a major impact on trade and the maritime industry. Global container volumes have declined 10 percent since the second half of 2008.
ACTA, which is a joint powers authority between the two ports and local governments, attributed the decline in local container volumes to the slowdown in goods movement. But the San Pedro Bay ports have also been hurt by shippers diverting more discretionary cargo to the new dedicated intermodal port in Prince Rupert, Canada, and opting for cheaper, more direct all-water routes to reach East Coast markets. Many retailers and other cargo owners are considering other ports to avoid potential labor strife, port fees and tough new regulatory requirements in California, in addition to hedging their risk for transportation disruptions by using multiple ports of entry.
| Photo Credit: ACTA |
'The Alameda Corridor Transportation Authority is disappointed that Moody's chose to downgrade its bond ratings one notch today. However, the positive indicators that point to container volumes increasing at the ports of Los Angeles and Long Beach will, we believe, lead to an upturn in containers traveling through the Alameda Corridor and long-term growth in ACTA revenues,' the agency said in a statement.
ACTA is working to restructure its debt by pushing out debt service to future years when revenues higher revenues are expected, Chief Financial Officer Jim Preusch said in an interview.
The transportation authority is negotiating with its lender to defer roughly $350 million to $450 million in debt payments that mature in the next 10 years, he said. The move hopefully will restore ACTA's A bond ratings, he added. A final announcement is expected in 60 to 90 days. A recent cargo forecast by IHS Global Insight and the Tioga Group, commissioned by the ports, said container traffic in the region will triple by 2035, but the timeframe is about 10 years longer than forecasts three years ago.
'The watch list for downgrade is based on the expectation that, despite recent signs of stabilization, cargo and revenue recovery will be protracted and future debt service coverage levels will be additionally pressured by an increasing debt service schedule,' Moody's said. Bondholders do not have collateral in the rail corridor itself, but hold a lien on the revenue associated with its operation.
ACTA's debt is backstopped by the two ports, which pledged under the master bond agreement to pay up to 40 percent of any shortfall in debt payments.
'We've never had to take any money from the ports and I don't think that will be the case' this time, Preusch said. ACTA also has $200 million cash reserves that can be used to support its debt service.
The authority in November also decided to postpone about $10 million in discretionary capital for expansion of a rail bridge and hold that money in reserve in case it's needed to service debt.
The international container fee for riding the Alameda Corridor went up 1.5 percent on Jan. 1 to $19.60 per TEU or $39.20 for a 40-foot box. Annual increases are based on the Consumer Price Index, with a floor of 1.5 percent and a ceiling of 4.5 percent. Fees are lower for bulk freight, breakbulk and non-waterborne containers.
The BNFSF Railway and Union Pacific, which serve the ports, are scheduled to stop paying the container fees in 2037, but if ACTA cannot pay off its debt it could collect fees from the railroads until 2062. Smaller fees may still be collected for operation and maintenance of the Corridor infrastructure.
In the event ACTA has to ask the ports for a shortfall advance, the container fee would automatically increase $1 per TEU. Officials estimate the increase would raise an additional $5 million per year.
The bulk of ACTA's annual expense is debt. It plans to pay more than $89 million during the fiscal year ending June 30 to cover debt, versus operating costs of $6 million to $8 million. Revenue from user fees and charges assessed on containers trucked to the intermodal yards has declined 10 percent during each of the past two fiscal years, finishing 2009 at $89.2 million. Moody's said debt service is expected to exceed revenue in fiscal year 2010. Debt payments are scheduled to ratchet up 40 percent to $132.5 million in fiscal year 2015 from $94.7 million in 2011.
In fiscal year 2009, freight traffic on the Alameda Corridor fell to 4.8 million TEUs compared to 6 million TEUs in 2006, which represented 38 percent of the container volume moving through Los Angeles and Long Beach at the time. Loaded international TEUs declined 23 percent from fiscal year 2007 (July 1, 2006 to June 30, 2007). TEUs declined 26 percent year-over-year in the first five months of fiscal year 2010, but ACTA management projects the year-end decline will only be 8 percent due to the recent cargo rebound.
During its first full year in service an average of 39 trains a day utilized the railway. The average increased to 55 trains per day in 2006. The daily train count now stands at 35.4 trains. The corridor was designed with a maximum capacity of about 150 trains per day to handle projected growth.
The decline in train counts reflects the contraction in cargo volumes as well as the fact that the railroads are building longer trains to move more containers at once.
'I think the Alameda Corridor is a very viable piece of our infrastructure for national goods movement. It provides efficiency in moving cargo off the terminals, it reduces community impacts and it was built with expansion in mind,' said Patty Senecal, head of California government affairs at the International Warehouse Logistics Association. ' Eric Kulisch