Alameda Corridor struggling to refinance
A rating company’s decision to downgrade certain bonds issued by the Alameda Corridor Transportation Authority this week left economists scratching their heads.
The reason? The ports of Los Angeles and Long Beach are celebrating one of their biggest one-year increases in trade in the last 25 years. That means it’s also a good year for the Alameda Corridor, a 20-mile express route built to speed the flow of cargo from the ports to the region’s railroad hub and on to retail shelves across the U.S.
“It seems like an overreaction,” economist John Husing said about Moody’s Investors Service’s downgrading of the bonds. The debt is paid from fees on every cargo container that moves along the route. “Trade has recovered nicely and traffic through the corridor is way up. They are having a sterling year.”
Husing, who tracks international trade for Economics and Politics Inc., wondered what it would have taken to satisfy Moody’s -- “absolute certainty over how much cargo will move through?”
The transportation authority has nearly $2.1 billion in outstanding senior and subordinate lien bonds from the construction of the corridor, which opened in 2002.
Moody’s said it lowered its rating to Baa2 from Baa1 on the $992 million worth of subordinate lien bonds because it feared that the post-recession surge in international trade would not continue next year. Its rating on the senior lien bonds remained at A3.
Through November, trade at the nation’s busiest seaport complex was up more than 20% compared with the same period last year, and that is expected to boost the corridor’s revenue this year 17% to $89 million from $76 million last year.
“We’re expecting container growth to moderate substantially and track closely with [gross domestic product] growth, at about 2% to 3% per year,” said Baye B. Larsen, a Moody’s analyst who tracks the Alameda Corridor.
She said the corridor would have to see at least twice as much growth in trade to keep up with its ability to make full debt payments.
The downgrade comes at a particularly bad time for the transportation authority, which is trying to refinance the rail corridor’s debt. On the current payment schedule, it might need a loan from the ports to cover debt payments as early as next year.
The corridor’s governing board had hoped to refinance its debt by the end of the year through a Federal Rail Administration loan. But on Dec. 14, federal officials said a decision had been postponed pending “further discussions ... concerning the terms of the proposed loan.”
That puts the transportation authority in a bind: Its bonds were downgraded in part because it hadn’t obtained a refinancing, yet refinancing is complicated by the fact that its bonds have been downgraded.
The upshot, economist Husing said, is that the refinancing will cost more, especially if the federal loan is denied and the transportation authority has to seek conventional public financing. (Borrowing from the ports would be a last resort.)
“Interest rates are increasing. They have missed the bottom of the market, and the loan is going to be more expensive now,” Husing said.
The $2.4-billion Alameda Corridor enables freight trains to travel from the ports to the transcontinental yards near downtown Los Angeles in 30 minutes, down from four hours on the meandering track they previously used.
The corridor also made a large portion of the rail route all but invisible at street level, with a trench that accommodates three sets of tracks.
Initially, the user fees covered debt payments and even generated a surplus. But port traffic suffered a sharp downturn during the recession, and debt payments were set to rise -- sometimes steeply -- through 2033.
In 2012, for example, payments on principal and interest are scheduled to jump to $117.1 million, from $102.5 million next year. The annual tab is to keep climbing, reaching $198.6 million in 2033.
If the authority has to borrow from the ports to cover a shortfall, the ports might end up deferring some of their own projects.
Husing thinks the problem is serious enough to warrant lobbying from the California delegation in Congress to push through the debt refinancing. He said it’s a national issue because the corridor handles almost 20% of the nation’s Asian imports.
“The ports of Los Angeles and Long Beach have become the nation’s busiest gateway for international trade in part because of the Alameda Corridor,” Husing said. “That would seem to be something that warrants some high-level help.”