Faced with the risk that the Obama administration could reject its effort to borrow $553 million from a little-used, low-cost federal rail credit program, the Alameda Corridor Transportation Authority slashed the request by 85 percent to $83.7 million.
That huge change in its loan application may be enough to get a top-level credit panel at the Department of Transportation to finally approve the loan, but it could mean the nearby ports of Los Angeles and Long Beach may have to help the express freight rail corridor cover scheduled payments on its $1.7 billion debt.
And it means that even with a reduced federal loan, the ACTA staff will be looking at other ways to restructure the outstanding debt that built the corridor.
The corridor was designed to take mostly container-hauling trains between the seaports’ terminals and connections 20 miles inland with intercontinental rail lines near downtown Los Angeles. The project eliminated numerous roadway-track crossings and used a 10-mile, multitrack rail trench to speed freight trains much faster than before.
Corridor traffic grew well after it opened in 2002, and its value to the regional and national supply chain rose as container volume surged for several years.
But the Great Recession cratered the foreign trade and containership calls that make the San Pedro Bay ports the busiest in North America. Because most ACTA revenue is from per-container fees paid by the railroads, the authority could see that at some point its scheduled debt service payments would outrun its diminished income stream.
By last year, ACTA CEO John T. Doherty expected that point to come in October 2011. Unless the authority restructured a major chunk of its debt, the two ports would need to make “shortfall advance” contributions later this year for ACTA’s debt payments.
For the ports, that also could mean diverting funds from port infrastructure improvements, which could affect the Southern California freight system for years to come.
Last year’s solid economic rebound helped, but has not made up for the lost income. “As beneficial as the recovery has been,” Doherty told The Journal of Commerce, “it is not enough to change ACTA’s projection” for when the Los Angeles and Long Beach ports would need to chip in. How much the payments would be, and how they continue, depend partly on “future San Pedro Bay cargo volumes and ACTA’s ability to restructure its debt service obligations,” he said.
Last March, the authority applied to borrow the $553 million from the Railroad Rehabilitation & Improvement Financing program — enough to refinance about a third of the corridor’s overall debt at low interest rates set at the government’s cost of funds and for up to 35 years.
But the ACTA request was more than double the largest credit the RRIF program has awarded since it began issuing loans in 2002.
The slow response is not because of a lack of available RRIF funds. The program is authorized to lend up to $35 billion for freight and passenger rail projects, but more than $34 billion is sitting untapped, because neither the Obama administration nor the Bush team before it pushed out a lot of RRIF credits.
RRIF is increasingly a hot topic for lawmakers, transportation industry groups and federal officials who screen loan requests. Key members of Congress, including House Transportation and Infrastructure Committee Chairman John Mica, R-Fla., want the administration to unblock this big source of already approved loan dollars. He said the RRIF’s “terms are so archaic or unacceptable that that money isn’t being used” enough for rail infrastructure needs, which could in turn take pressure off highways.
The ACTA worked the FRA’s loan process for months, aided by port officials who said the loan would allow them to proceed with job-creating projects rather than put money into ACTA debt payments.
As the months went by, the corridor agency could see time running out to get the federal loan or some alternative financing to head off or reduce the 2011 port shortfall payments.
In mid-December, the DOT’s credit panel postponed a final decision, partly to get the RRIF loan guaranteed at a higher level than other ACTA debt.
If the DOT approves its smaller loan request, the ACTA would target parts of its outstanding senior debt and satisfy the lien priority issues. It’s enough money to postpone any port help on debt payments to October 2012 and cut the ports’ potential advances in half. The smaller RRIF loan, the ACTA said, also would “produce or save nearly 800 jobs.”
Contact John D. Boyd at firstname.lastname@example.org.