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18 May 2017
New York, May 18, 2017 -- Summary Rating Rationale
Moody's Investors Service affirms National Railroad Passenger Corporation (Amtrak)'s A1 issuer rating, which incorporates a 0-notch uplift from its a1 baseline credit assessment (BCA, a measure of the company's standalone credit risk), reflecting the relationship between the company and the government of the United States (Aaa stable) in accordance with our Government-Related Issuers methodology. Concurrently, we affirm the A1 rating on Amtrak's Senior Unsecured Notes, Pennsylvania Station Lease Finance Trust, and PEDFA Exempt Facilities Revenue Bonds. Moody's also affirms the Aa2 rating on the Senior Secured Notes.
Amtrak's A1 stable rating reflects its baseline credit assessment (BCA) of a1 and assumes a high degree of dependence in light of the ongoing appropriations made by the US government to fund operating needs of the rail system, but a moderate probability of extraordinary support from the US government (Aaa stable). Amtrak receives approximately 30% of its revenues from the US government through annual grant appropriations by Congress, and in consideration of conversion features in its preferred stock is nearly 100% owned by the US government. While ongoing support is incorporated in the a1 BCA, our view of moderate extraordinary support potential considers the absence of explicit guarantees, the degree of separation from the government created by Amtrak's corporate structure, and the moderate history of extraordinary support by the US government for such enterprises.
While the GRI methodology scorecard output is Aa3, Amtrak's A1 rating further considers the risk that ongoing appropriations could be subject to US Government budget cuts. While annual federal funding for the railroad has been relatively steady in recent years, successive administrations have considered initiatives to reduce these subsidies and the current US President has proposed to eliminate all federal funding for Amtrak's long distance routes starting in FY 2018. This raises uncertainty about future annual federal funding and underscores our view regarding the moderate potential for extraordinary support, resulting in the A1 rating.
The Aa2 rating on the senior notes considers their structural features as Equipment Trust Certificates (ETC's) and their ability to benefit from section 1168 of the US bankruptcy code as well as a first priority lien on Amtrak's interest in 68 Siemens ACS-64 locomotives.
The rating outlook is stable based on multi-year growth in ridership and revenues and expected continued demand for Amtrak's passenger rail service, particularly in the NEC; expected continued federal appropriations; and Amtrak's planned reinvestments in revenue-producing equipment and facilities.
Factors that Could Lead to an Upgrade
Sustained and predictable increases in US government dedicated funding for both operating and capital needs in conjunction with continuing improvements in operating performance
More explicit support for Amtrak's debt by the US government
Factors that Could Lead to a Downgrade
Reduction in annual federal grant funding or a change to the political environment that indicates a reduction of ongoing federal support
A significant downturn in ridership and revenue without a commensurate reduction in operating expenses
Significant increase in debt leverage without offsetting increase in either farebox revenues or federal funding
Insufficient capital funding to meet pressing infrastructure investment needs, particularly in the NEC that decrease service reliability and depress ridership and revenue growth
The rated lease obligations and senior unsecured notes are a general obligation of Amtrak. The senior secured notes are secured by a first priority lien on Amtrak's interest in 68 Siemens ACS-64 locomotives.
Use of Proceeds
Amtrak is a federally-chartered for profit corporation incorporated under DC law. In consideration of conversion rights on preferred shares, the federal government is the majority stockholder. All preferred stock shares (109,396,994 currently outstanding at $100 par value) are held by the US Secretary of Transportation for the benefit of the federal government and are convertible at the option of the holder into common shares. Its common stock (9.386 million shares at $10 par value) is held by four entities whose passenger operations Amtrak assumed in 1971.
Based on FY 2016 financials and including annual federal grants the scorecard indicated rating under the Global Passenger Rail Rating Methodology is Aa3, which is one notch higher than the A1 rating and the proposed BCA. The A1 GRI rating incorporates risks associated with the federal appropriations process and future funding uncertainty that creates long-term operational and capital planning challenges.
The principal methodologies used in this rating were Government-Related Issuers published in October 2014 and Global Passenger Railway Companies published in March 2013. An additional methodology used in rating the Senior Secured Notes was the Enhanced Equipment Trust and Equipment Trust Certificates published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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