US rail network suspends $2.5 billion in debt deal with Southern California regional rail operator
A US rail operator says it will not be able to service the Southern California region as a result of a $2 billion deal struck with its biggest creditor, a Southern California Regional Rail Corp. (SSRC) subsidiary.
The US Department of Transportation (DOT) has approved the $2 million purchase of SSRC subsidiary Southern California Railway by the state’s largest credit union, the California Public Employees’ Retirement System.
The move means the $9.6 billion purchase by the $22.5 trillion credit union and its two largest creditors will be halted, said spokesman Steve Boudreau.
The credit union has agreed to pay $2,800 per year for five years, and will continue to pay the remaining $1.2 billion in principal and interest.
The purchase of the $15.4 billion SSRC facility, built by Southern California in the 1960s and 70s, was part of a broader deal for the credit union to buy assets from the Southern Californian, which will be transferred to SSRC.
Boudreau said the $1 billion payment is the first installment in a larger $1 trillion deal the creditunion and its creditors are expected to announce in the next several weeks.
He said the payment is also part of the credit agreement the credit Union and its lenders struck in December 2016, which included a $3.5-billion mortgage loan and $7.4-billion bond purchase.
The credit union said it will begin operations in 2021, but will operate only on the SSRC rail line that serves the Southern Los Angeles region.
“This is the beginning of the end of Southern California,” Bouda said.
“This is a historic opportunity for Southern California.”
In a statement, the credit unions’ board of directors said it was pleased to work with the state of California to resolve the outstanding issues and work with SSRC to resolve outstanding issues with the SSR.
“The credit unions board is proud to have helped create and sustain the credit of millions of California residents through the credit they already hold,” the statement said.
A deal struck between the credit banks and the SSRPB has made the $14 billion credit union’s debt structure smaller and the loan it needs less expensive.
The $14.6-billion deal between the SSRSB and the credit card industry’s biggest lender, U.S. Bancorp, means the credit-rating agency has cut SSRC’s credit-worthiness rating from AA to AA+.
It also removes the risk of SSRP being taken over by other lenders, reducing the likelihood of another credit default in Southern California.
SSRPB is a subsidiary of American Express, and it has more than 30,000 members in Southern Cali.
The SSRC board said it had reached an agreement with American Express for a new 10-year loan, which it said will allow it to keep operating as a standalone entity and still meet the needs of the public.
The debt issue came as Southern California’s financial crisis continued to worsen, with the county’s unemployment rate reaching 11.6% last month, up from 8.5% in August.
A new survey by the county also showed a large drop in residents living in the county without a driver’s license, a sign of the economic distress.