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06 Aug 2019
New York, August 06, 2019 -- Moody's Investors Service has affirmed National Railroad Passenger Corporation (Amtrak)'s A1 issuer rating, which incorporates a 1-notch uplift from its a2 baseline credit assessment (BCA, a measure of its standalone credit strength), 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 Series 2016 and the PEDFA (Pennsylvania Economic Development Financing Authority) Exempt Facilities Revenue Bonds (Amtrak Project) Series A of 2012. Moody's also affirms the Aa2 rating on the Senior Secured Notes Series 2016.
The outlook on the ratings is stable.
The affirmation of the A1 long-term issuer rating and the senior unsecured notes rating reflects Moody's expectation that Amtrak's credit profile will continue to benefit from a moderate level of support from the US government despite some uncertainty around the level of future federal appropriations for the Northeast Corridor (NEC) and the National Network after the expiration of the current FAST Act in FY 2020. In June 2019, the House approved around $2 billion in total federal appropriations for Amtrak ($700 million for the NEC, $1,300 million for the National Network), which is above the $1.8 billion previously authorized for FY 2020 under the FAST ACT. It also considers the very high default dependence between Amtrak and the US government.
The downgrade of the baseline credit assessment (BCA) to a2 from a1 reflects Moody's view that Amtrak's credit profile will remain constrained by weak stand-alone credit metrics, characterized by negative free cash flow generation and operating losses, relative to other global passenger railway companies and significant needs to modernize its fleet and improve the state-of-good repair of its equipment and underlying infrastructure.
However, Moody's positively recognizes Amtrak's incumbent monopoly position in the US intercity passenger rail market and growth in ridership and ticket revenues over recent years, the continued reduction in Amtrak's operating losses supported by higher ticket revenues with close to break-even EBITDA in FY 2018, fleet modernization efforts, increased focus on safety and expense control, as well as the stable track record of federal and state government funding support. Amtrak's credit profile remains highly reliant on federal appropriations to cover operating losses on non-profitable routes and fund maintenance capital expenditures.
Amtrak's credit profile also benefits from its current net cash position as a result of historically low debt balances and high cash on balance sheet. This leaves headroom for increases in debt to fund capital expenditures. Amtrak's total debt balance will increase to close to $3 billion by FY 2023 from $1.1 billion in FY 2018 as management will draw most of the $2.45 billion RRIF III commitment ($143.5 million outstanding as of September 30, 2018) through fiscal 2023 for the new Acela trainsets and other elements to support the new Acela trainsets.
Risks remain as to the amount of the federal budget appropriations and with respect to political support for management's long-term growth strategy and Amtrak's ability to reduce losses from underperforming long-distance routes. However, the operating environment for Amtrak has been fairly stable in recent years and sufficient funds have been allocated for operations and debt service, albeit less so for maintenance capital expenditure needs or for establishing new service routes.
The affirmation of the Aa2 senior secured notes Series 2016 reflects their structure as Equipment Trust Certificates (ETC's). These secured notes benefit from section 1168 of the US bankruptcy code as well as a first priority lien on Amtrak's interest in 68 Siemens of the 70 ACS-64 locomotives.
The stable outlook reflects our expectation of at least stable ridership and revenues, a stable operating environment and continued federal funding support, and continued focus on improving safety and state-of-good repair of Amtrak's operations.
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 standalone profitability and operating cash flow generation
- 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 reduction of ongoing federal support
- Downturn in ridership and revenue without a commensurate reduction in operating expenses
- Significant increase in leverage without offsetting increase in either farebox revenues or federal funding
- Insufficient capital funding to meet pressing infrastructure investment needs, particularly in the NEC, resulting in decreased service reliability and depressed ridership and revenue growth
- Downgrade of the rating of the Government of the United States
As of September 30, 2018 Amtrak had total long-term debt and capital lease obligations of around $908.6 million and short-term debt and capital lease obligations of $146.9 million. Amtrak also has access to a committed $100 million undrawn revolving credit facility due July 26, 2021.
The $365 million 3.6% senior secured notes due Nov 15, 2033 (Aa2) are structured as Equipment Trust Certificates (ETC's) and benefit from section 1168 of the US bankruptcy code as well as a first priority lien on Amtrak's interest in 68 Siemens of the 70 ACS-64 locomotives (2 of the 70 were in repair and therefore, not included in the collateral). At the end of calendar year 2018 around $318 million of these senior secured notes remained outstanding.
The $135 million 2016 3.81% senior unsecured notes due Nov 15, 2031 (A1) are rated at the same level as the Exempt Facilities Revenue Bonds (Amtrak Project) Series A of 2012. At the end of calendar year 2018 around $111 million of the senior unsecured notes remained outstanding.
The National Railroad Passenger Corp. (Amtrak) ("Amtrak") is a federally-chartered for profit corporation incorporated under DC law. Amtrak was incorporated in 1971 pursuant to the Rail Passenger Service Act of 1970 and is authorized to operate a nationwide system of passenger rail transportation. Amtrak primarily provides rail passenger transportation services in major intercity travel markets, such as the NEC, and also operates commuter rail operations on behalf of certain states and transit agencies, provides equipment and right-of-way maintenance services, and has leasing operations. In fiscal 2018 (ending September 30, 2018), Amtrak generated operating revenues of $3.4 billion.
The principal methodology used in these ratings was Global Passenger Railway Companies published in June 2017. An additional methodology used in these ratings was Government-Related Issuers published in June 2018. An additional methodology used in the Secured Notes Series 2016 rating was Enhanced Equipment Trust and Equipment Trust Certificates published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
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