Amtrak would be on the hook for about $150 million if either Standard & Poor's or Moody's Investors Service significantly downgrades Ambac Assurance Corp., which insures $900 million of the railroad's so-called economically defeased leases, an Amtrak official told a congressional panel yesterday.
"The level of exposure is probably about $150 million, but I think if [a downgrade] were to happen [the amount due would be] subject to negotiation," Amtrak president and chief executive officer Alexander Kummant told members of the House Appropriations Committee's transportation subcommittee at a hearing on fiscal 2009 funding for the railroad.
Under the defeased lease deals, which were entered into between 1999 and 2000, Amtrak sold rail equipment, mostly locomotives and passenger cars, to private investors and leased it back for less than the sale price, Amtrak officials said. As part of the deal, Amtrak placed the money needed to make the payments associated with the leases with Ambac, which also insured those payments. The insurance is contingent on Ambac maintaining its AAA rating with both S&P and Moody's. But if Ambac's rating is significantly downgraded, Amtrak would have to provide Ambac with capital to ensure that the payments would continue to be made. The amount due would be determined by how far the rating is lowered.
"We will have to see where it goes," Kummant said. "The stories on Ambac vary daily."
Earlier this week S&P affirmed Ambac's AAA rating, but kept the bond insurer on credit watch with negative implications.
The rating notice came as reports surfaced last week that Ambac's parent, Ambac Financial Group, may be close to finalizing a deal with a group of eight banks to raise $3 billion in capital and potentially save the bond insurer's triple-A rating.
Bond insurers with significant exposure to debt backed by subprime mortgage loans have faced difficult financial troubles and actual or threatened ratings downgrades.
Rep. Joseph Knollenberg, R-Mich., the ranking member on the subcommittee, said he is concerned that this is just one more issue that Amtrak must deal with and could ultimately end up costing taxpayers. He pointed out that Amtrak is projecting a $506 million loss for 2009, which is more than the $457 million loss posted in 2008.
"There is a concern that I have about it as it impacts Amtrak," Knollenberg said. The passenger rail service "seem to have enough concerns as it is, this is just one more."
As for overall funding for Amtrak for fiscal 2009, Rep. John Olver, D-Mass., chairman of the panel, was critical of President Bush's fiscal 2009 budget request of $900 million, which was similar to his proposal for 2008.
"I would like to have an administration that thought it was important to have passenger rail be part of a balanced transportation system and that was willing to come up with proposals that was realistic to fund it," Olver said. "We are going to work to do the best we can."
Federal Railroad Administration chief Joseph Boardman, who also appeared before the panel, said that the White House funding request is an attempt to get states to provide additional funding for rail service.
Meanwhile Rep. Norman D. Dicks, D-Wash., said at a separate hearing on funding for the Environmental Protection Agency that he is concerned Bush's 2009 $555 million funding request for the clean water state revolving loan fund will not be enough to meet the nation's wastewater funding needs.
"Your request is 48% below the level we provided in fiscal 2007," said Dicks, chairman of the appropriations panel that oversees water issues. "We have to figure out a way to meet the needs of our communities."
The clean water and drinking water SRFs provide low-interest loans to local governments and operators of sewer and drinking water facilities to pay for improvements to and maintenance infrastructure. The wastewater drinking water programs have become a primary source of water infrastructure financing and about 27 states have leveraged their programs by issuing tax-exempt bonds. Congress provided $700 million for the clean water SRF in 2008 The administration proposed $842 million for the drinking water SRF, the same amount Congress provided for the program in fiscal 2008.