Thursday, February 10, 2011

Alameda Corridor Receives Fed Loan to Bolster Revenue Shortfalls

The Southern California ports may be temporarily off the hook when it comes to using port reserves to cover the Alameda Corridor's debt service.

The Federal Rail Administration has approved an $83.7 million loan to the Alameda Corridor Transportation Authority that should forestall the need for the ports to cover ACTA's debt service until at least October 2012.

Opened in April 2002 at a cost of $2.4 billion, the Alameda Corridor is a 20-mile-long freight rail expressway that currently shuttles approximately 35 percent of the cargo containers moving through the Southern California ports to a transcontinental railroad yard near downtown Los Angeles.

The construction cost of the corridor was financed by the issuance of just over $1.7 billion in corridor revenue-backed bonds, $400 million from the ports of Long Beach and Los Angeles, and funding from various other government sources. Corridor revenues are generated by fees charged on containers using the corridor.

Until the global economic meltdown that sent cargo volumes at the two ports into a nearly 30 percent tailspin starting in 2007, ACTA had been generating enough revenue to cover its healthy debt service. However, the drop in cargo volumes dramatically reduced ACTA's revenues.

Last year, ACTA sought relief by applying for a $533 million loan from a Department of Transportation railroad loan program. In December, 2010, the three major bond rating agencies all took action on ACTA's outstanding bonds, either downgrading ACTA's bond ratings or issuing a negative outlook regarding the financial future of the corridor. In January, ACTA revised their request to $83.7 million after the DOT pointed out that the original loan request was more than double the amount ever requested of the federal agency.

Under the corridor operating agreement, the ports of Long Beach and Los Angeles are responsible for up to 40 percent of ACTA debt service in the event of corridor revenue shortfalls. Concerns have been raised in the industry that a long-term reliance on the two ports for corridor debt service could drain the ports of much-needed cash reserves.

Credit ratings agency Fitch estimated the two ports' total gross liability for corridor debt service "at $60 million to $150 million spread over the years 2012-2020 [and] depending on the severity of the stress assumptions."

All three ratings agencies have pointed out that while both ports have an adequate amount of unrestricted cash to meet any near-term shortfall payments without having to adjust their rates or tariffs, any sizable draw down of port cash reserves could reflect on the ports' own ratings.

According to Fitch, as of Sept. 30, 2010, the Port of Los Angeles had $311 million in unrestricted cash and the Port of Long Beach had $403 million in unrestricted cash.