Alaska Railroad credit rating takes hit from US Senate

[friscobob]

Alaska Railroad credit rating gets hit after Senate's $30 million funding
cut
Sean Cockerham
McClatchy Newspapers
Sean Cockerham McClatchy Newspapers
Updated: 2012-04-10T11: 48:56Z

WASHINGTON — Moody's Investors Service has lowered the outlook for Alaska
Railroad bonds from stable to negative, saying the U.S. Senate's move to gut
the railroad's budget could leave it short of money to pay off debt.

The action applies to $135 million in Alaska Railroad bonds backed by
federal dollars. The bonds mostly pay for track work, as well as collision
avoidance technology and purchasing and renovating equipment.

Moody's said it was lowering the credit rating assigned to the Alaska
Railroad bonds from A1 to a still solid A2. But it also said the rating is
going to drop much further if the U.S. House agrees with the Senate plan to
cut about $30 million from the railroad and the state doesn't step in with a
bailout.

"The outlook is negative, reflecting the risk of future credit deterioration
in the event that Congress passes (the legislation) ... Such measures would
leave insufficient revenue for debt service in that event -- and in the
absence of state support -- a significantly lower rating would be
indicated," Moody's said.

A credit rating downgrade makes it more expensive for the railroad to borrow
money in the future. The railroad hasn't heard from the other two major
credit rating agencies, Fitch and Standard & Poor's, but the union that
represents its train crews said last month that such a big budget cut could
force the railroad to lay off a third of its employees, dramatically reduce
passenger services and default on its bonds.

The management of the state-owned railroad corporation says it would try to
avoid bond default all costs and is working to figure out what such a cut
would mean. The railroad says the cut would reduce its Federal Transit
Administration grant funding from about $35 million down to between $2
million and $10 million.

A cut of about $30 million would represent a major blow for the railroad,
which last year had $13.4 million net income on total revenues of $188
million.

"We've got lots of different ways to look at it but everything comes around
to the fact it's not good," railroad CFO Bill O'Leary said in an interview
on Monday.

O'Leary said the railroad is working with Alaska Rep. Don Young to try and
prevent the cut.

"There's a long way to go on this thing," he said. "We're going to work our
darndest to make sure everyone understands the story and what the
implications are."

The House and the Senate are fighting over what to do about transportation
spending with no end in sight. Congress just passed a three-month extension
of the federal transportation program to buy more time to sort it out.

The issue for the Alaska Railroad is language the state's congressional
delegation put in the 2005 transportation bill setting up how the railroad
would be funded. The Senate banking committee is taking the position that it
was an earmark and that this year's transportation bill will have no
earmarks.

[BoxcabE50]

I wonder, short and long term, how this could negatively effect that State economy as a whole...