NATIONAL RAILROAD PASSENGER CORPORATION (“AMTRAK”)

Financing analysis, MBA CASE

NATIONAL RAILROAD PASSENGER CORPORATION (“AMTRAK”)

ACELA FINANCING

AMTRAK AND ACELA PROJECT BACKGROUD

In 1971, Unite State Congress create Amtrak (The National Railroad Passenger Corporation to ensure that” Modern, efficient intercity passenger rail service would remain a integral part of national transportation system. In 1997, congress passed the Amtrak Reform and Accountability Act (ARAA), which stipulated that Amtrak eliminate its reliance on federal subsidies by 2002. After 2002, no federal funds could be uses for Amtrak operation expense.

In late 1999, AMTRAK would like to invest ACELA, a new high speed rail service with speed of 150 miles per hour, and expected to launch ACELA in fall of 2000.

Here came question that what’s kind of financing policy should be taken for Arlene Friner, CFO of Amtrak. There are three financing options list as following.

THREE FINANCING OPTIONS

The first option is borrow and buy. A major bank had offered to underwrite a bond issuance for Amtrak with a 20-year term at 6.75% per annum, this arrangement would call for Amtrak to make semi-annual payment of $12.303 million, from December 1999.

The second option is leverage lease. Leveraged leases were those in which the lesser borrowed money to fund part of purchase of assets, pledging the lease contract as security for the load. BNY capital Funding LLC, a wholly owned subsidiary of the Bank of New York would act as lesser. It would provide the equity funds needed to finance the purchase, On the other hand, the Expert Development Corporation (EDC) of Canada would be the sole lender and debt provider, agreeing to provide 80 percent of required funds, The equity investor, BNY Capital Funding LLC, provided the remaining 20%, and would receive lease payment after the debtor had been paid.

All money from Lessee to Lesser will go through the third party Wilmington Trust For below table we can see the relationship and cash flow through the parties.

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