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Alameda Corridor debt rating cut by Moody's

Credit rating firm Moody’s Investors Service on Wednesday sounded a warning about the debt of the Alameda Corridor Transportation Authority, the 20-mile rail route built to speed the flow of cargo from the ports of L.A. and Long Beach to the national transportation system.

Moody’s downgraded $1.7 billion of the authority’s bonds, citing “the decline in cargo levels and operating revenues that have resulted from the global economic downturn and the resulting decrease in debt service coverage.”

The authority’s senior lien bonds were cut to A3 from A2 by Moody’s; the subordinated lien bonds were lowered to Baa1 from A3.

Those still are investment-grade ratings, but Moody’s also said it put the debt on its watch list for potential further downgrades. A drop to the “Ba” level would make the bonds non-investment-grade, or junk, limiting the pool of investors that could own them.

 From Moody’s:

The watchlist for downgrade is based on the expectation that, despite recent signs of stabilization, cargo and revenue recovery will be protracted and future debt service coverage levels will be additionally pressured by an increasing debt service schedule.

The watchlist will consider the authority's plans to restructure portions of the outstanding debt to try to limit the debt service increases over the next several years. Further review of the ratings will continue as the restructuring plan is finalized.

Although Moody’s said the eight-year-old Alameda Corridor remained “an essential link between the ports and the transcontinental railroad system in the movement of discretionary cargo across the nation,” it noted the 23% drop in cargo traffic from fiscal year 2007 to fiscal 2009, and raised concern about the authority’s “limited ability to raise rates” to protect debt holders.

Responding to Moody’s, the corridor authority said it was “disappointed” by the decision. In a release, the authority tried to assuage investor concerns, saying that its planned debt restructuring “would reduce debt service over the next five to 10 years and increase debt service in future years, when projections demonstrate that more than substantial revenue would be available.”

-- Tom Petruno

 
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