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entitled 'Intercity Passenger Rail: Potential Financial Issues in the 
Event That Amtrak Undergoes Liquidation' which was released on October 
01, 2002.



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Report to the Chairman, Committee on Transportation and Infrastructure, 

House of Representatives:



United States General Accounting Office:



GAO:



September 2002:



intercity passenger rail:



Potential Financial Issues in the Event That Amtrak Undergoes 

Liquidation:



Amtrak Liquidation:



GAO-02-871:



Contents:



Letter:



Results in Brief:



Background:



Creditor Claims and Ownership Interests Were Not Likely to Have Been 

Satisfied if Amtrak Had Been Liquidated:



Liquidation Would Have Adversely Affected the Railroad Retirement and 

Unemployment Systems:



Agency Comments and Our Evaluation:



Scope and Methodology:



Appendix I: Significant Aspects of the Railroad Bankruptcy 

Process:



Appendix II: Comments from the National Railroad Passenger Corporation:



Tables:



Table 1: Secured Liabilities and Lease Obligations in the Event 

That Amtrak Had Been Liquidated on December 31, 2001:



Table 2: Outstanding Liabilities to Non-U.S. Government Lenders, by 

Type of Loan and Asset Category, as of December 31, 2001:



Table 3: Outstanding Liabilities for Equipment and Property, by Foreign 

and Domestic Participating Interest, as of December 31, 2001:



Table 4: Unsecured Liabilities in the Event That Amtrak Had Been 

Liquidated on December 31, 2001:



Table 5: Estimated Cost of Labor Protection, as of December 31, 2001:



Figures:



Figure 1: Creditor Claims and Stockholder Interests in the Event That 

Amtrak Had Been Liquidated on December 31, 2001:



Figure 2: Amtrak’s Route System, as of August 2002:



Figure 3: Balance of Railroad Retirement Account in the Event That 

Amtrak Had Been Liquidated on December 31, 2001:



Figure 4: Estimated Changes in Tax Rates in the Event That Amtrak Had 

Been Liquidated on December 31, 2001:



Letter:



September 20, 2002:



The Honorable Don Young 

Chairman, Committee on Transportation

 and Infrastructure

House of Representatives:



Dear Mr. Chairman:



The National Railroad Passenger Corporation (Amtrak), the nation’s 

intercity passenger rail operator, was created by Congress in 1970 

after the nation’s railroads found passenger service to be 

unprofitable. It is a private corporation. Its financial condition has 

never been strong and it has been on the edge of bankruptcy several 

times. In 2001, Amtrak lost about $1.2 billion and had to mortgage a 

portion of Pennsylvania Station in New York City to generate enough 

cash to meet its expenses. Early this year, Amtrak stated that federal 

financial assistance would have to more than double (to $1.2 billion) 

for the corporation to survive. Most recently, in July 2002, the 

Department of Transportation approved a loan of $100 million to Amtrak 

because the railroad was running out of cash. Amtrak plans to seek 

additional funds to allow it to survive through the fiscal year. 

Given Amtrak’s worsening financial condition and the potential for 

intercity passenger rail to play a larger role in our nation’s 

transportation system, there is growing agreement that the mission, 

funding, and structure of the current approach to providing 

intercity passenger rail merits reexamination.[Footnote 1]



The Amtrak Reform and Accountability Act of 1997 prohibits Amtrak from 

using federal funds for operating expenses after 2002, except for an 

amount equal to excess Railroad Retirement Tax Act payments.[Footnote 

2] The act further requires that Amtrak prepare “an action plan for the 

complete liquidation” of the railroad and submit it to Congress if the 

Amtrak Reform Council (the Council--an independent oversight body 

created by the act) were to find that Amtrak would require federal 

operating assistance beyond 2002.[Footnote 3] In November 2001, the 

Council made such a finding. Subsequently, the 2002 Department of 

Defense emergency supplemental appropriations act prohibited Amtrak 

from spending appropriated funds or its own revenues to prepare the 

liquidation action plan. In the absence of a liquidation action plan 

from Amtrak, you asked us to update the financial information in our 

1998 report on financial and transportation issues associated with an 

Amtrak liquidation.[Footnote 4] As a result, this report provides 

information on the potential direct financial issues associated with 

(1) the federal government, Amtrak employees, and other creditors and 

(2) the railroad retirement and unemployment systems, in the event that 

Amtrak were to be liquidated.[Footnote 5]



This report does not discuss the likelihood or advisability of 

liquidating Amtrak. Nor does it purport to substitute for a detailed 

liquidation analysis that would have to proceed from any such formal 

action. Liquidation is an extreme action, and bankruptcy law seeks, 

among other things, to protect the public interest in maintaining 

continued rail service. Since 1976, only two Class I railroads (the 

nation’s largest railroads) have ceased operations because of 

bankruptcy, and only one--the Chicago, Rock Island, and Pacific 

Railroad--was liquidated (in 1980). If Amtrak filed for bankruptcy, the 

trustee appointed to handle the bankruptcy could attempt to reorganize 

the corporation and continue transportation services rather than 

immediately liquidate it. An important consequence of any Amtrak 

bankruptcy is that the trustee and the Bankruptcy Court would be making 

decisions about Amtrak’s future, rather than the corporation or 

Congress, through the oversight process. Because of the difficulty in 

predicting how Amtrak might be reorganized and because of your 

interest, we focused on the financial issues that would ensue if Amtrak 

were liquidated.



Consistent with your request, this report focuses on the potential 

direct financial issues of an Amtrak liquidation on Amtrak creditors 

and owners. The report does not discuss secondary issues, such as 

possible damage to a creditor if it does not collect amounts owed to it 

by Amtrak, or loss of business or increased unemployment insurance 

claims if a vendor has to reduce its workforce because of Amtrak’s 

liquidation. In addition, the report does not discuss the effects of 

the cessation of intercity passenger rail service, or the effects on 

commuter and freight rail service that rely on access to Amtrak’s 

tracks or rely on Amtrak to operate their trains. For example, commuter 

railroads would be adversely affected if they did not have access to 

tracks and stations owned by Amtrak, and if they had to absorb 

infrastructure costs previously borne by Amtrak. Additionally, commuter 

rail operators that contract with Amtrak to provide service would have 

to find new operators--a potentially time-consuming and expensive 

proposition. Finally, several commuter and freight railroads that use 

Amtrak’s Northeast Corridor (running from Boston to Washington, D.C.) 

face harm to their businesses to the extent that they are unable to 

retain access to the corridor. Several of these issues are discussed in 

more detail in our recent testimony before this committee’s 

Subcommittee on Railroads, and in our 1998 report on financial and 

transportation issues that could result from an Amtrak 

liquidation.[Footnote 6]



To carry out our work, we reviewed laws related to Amtrak and 

bankruptcy and analyzed financial information provided by Amtrak on its 

assets, liabilities, and ownership interests. As agreed with your 

office, we did not attempt to determine the market value of Amtrak’s 

assets had it been liquidated. We also asked the Railroad Retirement 

Board (Board) to estimate the potential financial impacts of an Amtrak 

liquidation on the railroad retirement and unemployment 

systems.[Footnote 7] We did not independently verify the information 

provided by Amtrak or the analysis performed by the Railroad Retirement 

Board. We assumed Amtrak’s liquidation as if it occurred on December 

31, 2001 (the latest data available at the time of our review).



Results in Brief:



If Amtrak had been liquidated on December 31, 2001, secured creditors 

and unsecured creditors--including the federal government and Amtrak 

employees--and stockholders would have had about $44 billion in 

potential claims against and ownership interests in Amtrak’s estate. 

(See fig. 1.) The federal government would have been by far the largest 

claimant, accounting for about 80 percent of the value of all creditor 

claims and ownership interests. It would have had about $14.2 billion 

in secured claims against real property, primarily property making up 

the Northeast Corridor, and about $4.4 billion in claims against 

equipment. It also would have had an ownership interest totaling about 

$17.1 billion in Amtrak preferred stock and cumulative unpaid 

dividends. Of the $4.4 billion in unsecured creditor claims, the 

largest category would have been Amtrak’s employees, with potential 

claims of about $3.2 billion for payments that Amtrak would owe to 

terminated employees. (These payments, stemming from collective 

bargaining agreements, are called “labor protection payments.”) It is 

unlikely that secured and unsecured creditors’ claims would have been 

fully satisfied, because--other than the Northeast Corridor--Amtrak’s 

assets available to satisfy these claims and interests (such as 

equipment and materials and supplies) are old, have little value, or 

appear unlikely to have a value equal to the claims against them. The 

market value of Amtrak’s most valuable asset (the Northeast Corridor) 

has not been tested. While the corridor has substantial value, it is 

subject to easements and has billions of dollars of deferred 

maintenance. Furthermore, it is not likely that the stockholders would 

have received any payment for their ownership interest.



Figure 1: Creditor Claims and Stockholder Interests in the Event That 

Amtrak Had Been Liquidated on December 31, 2001:



[See PDF for image]



Note: Stockholder interests are different from creditor claims. 

Stockholders receive funds only after secured, unsecured, and 

administrative expenses relating to liquidating the estate are 

satisfied. The amount of the stockholder interest consists of the total 

of the recorded value of the stock (common and preferred) plus 

cumulative unpaid preferred stock dividends.



Source: GAO’s analysis of Amtrak’s data.



[End of figure]



An Amtrak liquidation would have adversely affected participants in the 

railroad retirement and unemployment systems. If all Amtrak employees 

had lost their jobs on December 31, 2001, and were not reemployed in 

the railroad industry, the railroad retirement system would have lost 

over 

$400 million in annual contributions from Amtrak payroll taxes (about 9 

percent of total receipts). The Railroad Retirement Board estimated 

that the railroad retirement account would begin to decline in 2006 and 

would be in a deficit by 2024 if no actions were taken to increase 

payroll taxes or reduce benefits. To forestall this deficit, the Board 

estimated that the rates contained in the tier II tax rate schedule 

(tier II taxes are taxes paid by employers and employees that pay 

railroad pension benefits over and above social security levels) would 

have to be increased by 1.64 percentage points. As a result, payroll 

taxes paid by employers and employees would have had to increase to 

22.1 percent in 2002 (an increase of 8 percent over the 20.5 percent 

rate planned if Amtrak did not undergo liquidation). In 2023, the year 

before the deficit, payroll taxes were estimated to be 24.6 percent, 

about 7 percent greater than the 23.0 percent rate planned if Amtrak 

did not undergo liquidation. The financial impact on the railroad 

unemployment system would have been more immediate, but short-term. 

According to the Railroad Retirement Board, the unemployment account 

would have been exhausted in 2002, the unemployment account would have 

had to borrow $338 million from the railroad retirement account, and 

unemployment taxes would have had to increase from 4 percent to 12.5 

percent between 2002 and 2004 for the system to maintain its financial 

health. Amtrak’s railroad unemployment insurance-related costs would 

have been borne by other rail employers.



In commenting on a draft of this report, Amtrak stated that it was in 

general agreement with the report and that the report fairly 

represented the costs and ramifications of an Amtrak liquidation. 

However, Amtrak believed that there would be material consequences of 

liquidation about which the report was silent, including the 

substantial burden a liquidation could have on commuter and freight 

railroads, especially on the Northeast Corridor. In Amtrak’s 

estimation, liquidating Amtrak could increase these railroads’ 

operating and capital costs by about $600 million annually. We 

acknowledged the potential financial and operational impact on commuter 

and freight railroads both in the draft report on which Amtrak 

commented and in this final report. Amtrak also commented that the 

interest of the preferred stock holder would be about $6 billion more 

than the 

$10.9 billion we originally included in the draft report. This 

represents cumulative preferred stock dividends that were not declared 

or paid between 1981 and 1997. We noted that this $6 billion was not 

expressly disclosed in Amtrak’s financial statements, and we brought 

this to Amtrak’s, and its external auditor’s, attention for possible 

future disclosure. We amended our report to recognize the preferred 

stock dividends. The Department of Transportation and Railroad 

Retirement Board did not express an overall opinion about the draft 

report. Rather, they offered technical comments designed to clarify 

specific points in the report. With few exceptions, these comments were 

incorporated into the report.



Background:



Amtrak was established by the Rail Passenger Service Act of 1970. 

Amtrak operates a 22,000-mile network, primarily over freight railroad 

tracks, providing service to 46 states and the District of Columbia. 

(See fig. 2.) In fiscal year 2001, Amtrak served about 23.5 million 

intercity rail passengers over 43 routes. In addition, Amtrak is the 

contract operator of seven commuter rail systems. These commuter rail 

systems served about 63.4 million passengers in fiscal year 2001. 

Amtrak owns a variety of assets, most notably about 650 miles of track, 

primarily along the Northeast Corridor. The corridor is used by eight 

commuter railroads (operated by state and local governments) that serve 

about 1.2 million passengers each workday, and six freight railroads 

operating 38 trains per day. Amtrak also owns passenger stations, rail 

shops, and rail equipment, including passenger cars and locomotives. 

From fiscal year 1971 through fiscal year 2002, the federal government 

has provided Amtrak with over $25 billion in operating and capital 

subsidies.[Footnote 8] In July 2002, Amtrak employment was about 23,000 

people.



Figure 2: Amtrak’s Route System, as of August 2002:



[See PDF for image]



Source: Amtrak.



[End of figure]



The railroad retirement system provides retirement and disability 

benefits to the nation’s retired railroad workers and their survivors 

(including those of Amtrak), while the railroad unemployment system 

pays a portion of lost wages to railroad employees who lose their jobs 

or are sick. In fiscal year 2001, the Railroad Retirement Board paid 

about $8.4 billion (net of recoveries) in retirement and survivors’ 

benefits to about 700,000 beneficiaries, and about $95 million in 

unemployment and sickness benefits to about 40,000 railroad workers. 

Railroad retirement payroll taxes are made up of tier I and tier II 

taxes, and are used to pay tier I, tier II, and supplemental annuity 

benefits.[Footnote 9] Employers and employees pay tier I taxes at the 

same rate as social security taxes, and benefits are based on combined 

railroad and nonrailroad service. Tier I benefit amounts are generally 

the same as those paid under the Social Security Act. Tier II taxes are 

used to finance railroad retirement pension benefits over and above 

social security levels. Under the Railroad Retirement and Survivors’ 

Improvement Act of 2001, employer tier II tax rates are set at 15.6 

percent and 14.2 percent for 2002 and 2003, respectively. Beginning in 

2004, tier II tax rates will be determined based on the calculation of 

an assets-to-benefits payout ratio. Employee tier II taxes are 4.9 

percent for 2002 and 2003, and then capped at 4.9 percent thereafter. 

The act did not change tier I tax rates.



Should Congress decide to liquidate Amtrak as part of a restructuring 

of intercity passenger rail service or should Amtrak’s financial 

condition force it to file for bankruptcy, Amtrak must do so under 

chapter 11 of the Bankruptcy Code. This chapter contains provisions 

regarding the management and reorganization of debtors, including 

railroads, and specifies the circumstances under which a railroad may 

be liquidated. Among other things, chapter 11 seeks to protect the 

public interest in maintaining continued rail service. However, a 

railroad may be liquidated upon the request of an interested party 

(such as a creditor) if the court determines liquidation to be in the 

public interest.[Footnote 10] A railroad must be liquidated if a plan 

for reorganizing it has not been confirmed within 5 years of its filing 

for bankruptcy. An appointed trustee plays a key role and, subject to 

the court’s review, directs the railroad and its affairs during 

bankruptcy. In liquidation, the trustee administers the distribution of 

the railroad’s assets in accordance with the Bankruptcy Code. (See app. 

I for a discussion of the significant aspects of the railroad 

bankruptcy process.):



Creditor Claims and Ownership Interests Were Not Likely to Have Been 

Satisfied if Amtrak Had Been Liquidated:



If Amtrak had been liquidated on December 31, 2001, secured and 

unsecured creditors,[Footnote 11] including the federal government and 

Amtrak’s employees, and stockholders (preferred and common) would have 

had about $44 billion in potential claims against and ownership 

interests in Amtrak’s estate. The federal government would have been by 

far the largest secured creditor (for property and equipment) and would 

have had the largest stockholder interest (in preferred stock), 

together representing about 80 percent (about $35.7 billion) of the $44 

billion amount. Of the $4.4 billion in unsecured claims, Amtrak’s 

employees would have had potential claims for about $3.2 billion in 

labor protection payments (payments that Amtrak would owe to terminated 

employees stemming from collective bargaining agreements). Amtrak’s 

employees would also have had other unsecured claims for such things as 

vacation pay and injury claims, and retirees would have had claims for 

post-retirement medical benefits.



It is not likely that secured and unsecured creditors’ claims and would 

have been fully satisfied, because Amtrak’s assets--other than the 

Northeast Corridor--available to satisfy these claims and interests 

(such as equipment and materials and supplies) are old, have little 

value, or might not have a value equal to the claims against them. The 

market value of Amtrak’s most valuable asset (the Northeast Corridor) 

has not been tested. While the Corridor has substantial value, it is 

subject to easements and has billions of dollars of deferred 

maintenance. Furthermore, it is not likely that the stockholders would 

have received any payment for their ownership interest.



Secured Creditors’ Claims Would Not Likely Have Been Satisfied:



Amtrak’s secured creditors would have had about $22.4 billion in claims 

against the recorded amount of its property and equipment as of 

December 31, 2001.[Footnote 12] (See table 1.) In general, secured 

creditors are able to attach the property and equipment that were 

pledged as collateral to secure Amtrak’s debt to pay their claims. To 

the extent that individual secured creditors’ claims exceed the 

liquidation proceeds of specifically pledged property and equipment, 

the excess outstanding indebtedness would become unsecured claims.



Table 1: Secured Liabilities and Lease Obligations in the Event That 

Amtrak Had Been Liquidated on December 31, 2001:



Dollars in millions.



Federal government:



Type of security: Real property; Potential claims: $14,211; Percent 

of total: 63%.



Type of security: Passenger cars and locomotives; Potential claims: 

4,376; Percent of total: 20.



Type of security: Subtotal; Potential claims: $18,587; Percent of 

total: 83%.



Private lenders:



Type of security: Passenger cars and other rolling stock; Potential 

claims: 1,526; Percent of total: 7.



Type of security: Locomotives; Potential claims: 941; Percent of 

total: 4.



Type of security: High-speed train sets; Potential claims: 625; Percent 

of total: 3.



Type of security: Mail and express freight cars; Potential claims: 34; 

Percent of total: a.



Subtotal equipment:



Type of security: Northeast Corridor improvements; Potential claims: 

673; Percent of total: 3.



Type of security: Other property; Potential claims: 49; Percent of 

total: a.



Subtotal property; Potential claims: $722; Percent of total: 3%.



Total; Potential claims: $22,435; Percent of total: 100%.



[A] Less than 1 percent.



Source: GAO’s analysis of Amtrak’s data.



[End of table]



Among all of Amtrak’s secured creditors, the U.S. government would have 

had the largest claim to payments from the sale of Amtrak’s assets in 

liquidation. Federal secured claims would have been on Amtrak’s real 

property (up to $14.2 billion) and equipment ($4.4 billion) for a 

combined total of 83 percent of all secured creditor claims. These 

claims largely arise from two promissory notes issued by Amtrak and 

held by the federal government. The first note represents a secured 

interest on Amtrak’s real property (primarily Amtrak’s Northeast 

Corridor) and matures in about 970 years (December 31, 2975). In June 

2001, in conjunction with Amtrak’s mortgage of a portion of 

Pennsylvania Station in New York City, the federal government 

strengthened its position regarding this note by making the principal 

and interest due and payable if Amtrak files for bankruptcy and is 

liquidated or if Amtrak defaults under the mortgage.[Footnote 13] Prior 

to that date, acceleration of the due date would have required 

enactment of a statute requiring immediate payment, and there would 

have been no interest payable unless the due date had been 

accelerated.[Footnote 14]



On the basis of information provided by the Federal Railroad 

Administration, we calculate that if Amtrak had been liquidated on 

December 31, 2001, about $14.2 billion in principal and interest would 

have been due and payable on the note.[Footnote 15] Satisfaction of 

this claim from the sale of the secured assets would depend on the 

market value of the property--the amount due is limited to the fair 

market value of the property. The market value of the Northeast 

Corridor has not been tested; furthermore, commuter and freight 

railroad easements, about $4 billion in deferred maintenance, and the 

extent to which this property could be used for telecommunications and 

other utilities could affect its ultimate value. In the event of 

liquidation, the federal government could pursue several options, 

including transferring ownership of these assets to an entity or 

entities that would allow continued rail use.



The second federal note is secured by a lien on Amtrak’s passenger cars 

and locomotives. This note matures on November 1, 2082, with successive 

99-year renewal terms. If Amtrak had been liquidated on December 31, 

2001, this note would have been accelerated, and about $4.4 billion in 

principal and interest would have become immediately payable.[Footnote 

16] Similar to its actions regarding the first note, the federal 

government acted in 2001 to strengthen its claim. Federal Railroad 

Administration officials told us that the lien securing the original 

note required the government to subordinate its lien on the equipment 

acquired by Amtrak after 1983 (the date of the original note) in 

individual transactions to the security interest of Amtrak’s equipment 

creditors in these transactions. This was done to assist Amtrak in 

obtaining financing from the private sector. Amtrak’s June 2001 

mortgage of Pennsylvania Station amended the original real property 

mortgage discussed above to provide the federal government with a 

security interest in all other real and personal property held by 

Amtrak as of June 20, 2001, that was not otherwise encumbered, and any 

real and personal property acquired by Amtrak after that date.[Footnote 

17] Although the amendment to the mortgage strengthened the federal 

government’s security interest in otherwise unencumbered property, it 

did not change its priority with respect to other secured creditors of 

Amtrak’s equipment. This, in addition to the fact that the equipment is 

old, with limited market value in liquidation, means that the federal 

government would probably not have realized much, if anything, from the 

second federal note had Amtrak been liquidated on December 31, 2001.



The majority of the non-U.S. government lenders’ secured property 

claims would have been associated with passenger cars and equipment 

($1.5 billion), locomotives ($941 million), and Northeast Corridor 

property ($673 million).[Footnote 18] It is not likely these creditors’ 

claims would have been fully satisfied in liquidation, because a 

substantial portion of Amtrak’s equipment is old and may not have had a 

value equal to the outstanding loan amount. As of March 2002,[Footnote 

19] approximately 36 percent of Amtrak’s active equipment--that is, 

passenger cars, locomotives, mail/baggage/express cars, and auto 

carriers--had an average age of 20 years or more. Age was even more of 

a factor when looking at certain equipment types. For example, about 63 

percent of Amtrak’s passenger car fleet and about 34 percent of its 

locomotives had an average age of 20 years or more. Old equipment, even 

if well maintained, could potentially limit the proceeds obtained in a 

liquidation. This problem could be compounded if a substantial amount 

of equipment were placed on the market at the same time. In contrast, 

some non-U.S. government lenders’ claims on Amtrak’s real property 

could be more valuable than claims on equipment. That is because 

stations and maintenance facilities could be refurbished to provide 

continuing use for either their intended or alternative purposes.



Amtrak’s recent acquisition of new passenger cars and locomotives and 

its efforts to update facilities have resulted in a significant 

increase in the level of private debt. From September 1997 (the date at 

which we measured liabilities in our 1998 report on a possible Amtrak 

liquidation) to December 2001, Amtrak’s private secured creditor claims 

for both property and equipment increased by 245 percent, from $1.1 

billion to 

$3.8 billion. For the most part, Amtrak’s private-sector financing of 

equipment and property acquisitions comes from debt and long-term 

leases. However, in recent years Amtrak has sold some of its equipment 

and leased it back--through what are called sale-leaseback 

arrangements. Under these arrangements, the buyer holds title to the 

equipment and Amtrak receives cash, as well as possession of the 

equipment. As of December 31, 2001, about 24 percent of Amtrak’s 

outstanding private debt liability ($924 million) was in sale-leaseback 

arrangements. (See table 2.) This debt primarily relates to four sale-

leaseback transactions Amtrak entered into in fiscal year 2000, 

involving about 600 passenger cars. In the event of liquidation, 

because the lessors involved in these transactions own the equipment, 

their secured creditor position remains intact. In addition, in 

conjunction with these transactions, a total of about 

$830 million of Amtrak’s sale proceeds were put into a trust account 

and recorded as assets on Amtrak’s financial records. Because these 

funds were specifically earmarked to service the original debt 

liability associated with the sale-leaseback arrangements, in 

liquidation they would not necessarily be available to satisfy general 

creditors’ claims.



Table 2: Outstanding Liabilities to Non-U.S. Government Lenders, by 

Type of Loan and Asset Category, as of December 31, 2001:



Dollars in millions.



Capital leases:



Type of loan: Equipment; Amount: $2,136; Percent of total: 56%.



Type of loan: Equipment (sale-leasebacks); Amount: 924; Percent of 

total: 24.



Type of loan: Real property; Amount: 405; Percent of total: 10.



Other debt:



Type of loan: Mortgages (real property); Amount: 317; Percent of 

total: 8.



Type of loan: Construction-in-process (equipment); Amount: 66; 

Percent of total: 2.



Type of loan: Total; Amount: $3,848; Percent of total: 100%.



Note: Does not include amounts owed the U.S. government.



Source: GAO’s analysis of Amtrak’s data.



[End of table]



In response to your interest, we found that 68 percent of Amtrak’s 

outstanding debt as of December 31, 2001--other than debt held by the 

U.S. government--was held by, or at least initially was connected with, 

foreign participants. (See table 3.) Foreign interests accounted for 

about 72 percent of debt on equipment and 50 percent of debt on 

property.



Table 3: Outstanding Liabilities for Equipment and Property, by Foreign 

and Domestic Participating Interest, as of December 31, 2001:



Dollars in millions.



Equipment:



Description: Foreign; : $2,240; Percent within asset category: 72%; 

Percent of total debt: 58%.



Description: Domestic; : 886; Percent within asset category: 28; 

Percent of total debt: 23.



Description: Subtotal; : $3,126; Percent within asset category: 

100%; Percent of total debt: 81%.



Property:



Description: Foreign; : 364; Percent within asset category: 

50; Percent of total debt: 10.



Description: Domestic; : 358; Percent within asset category: 

50; Percent of total debt: 9.



Description: Subtotal; : $722; Percent within asset category: 100%; 

Percent of total debt: 19%.



Description: Total; : $3,848; Percent within asset category: 

[Empty]; Percent of total debt: 100%.



Note: Does not include amounts due the U.S. government.



Source: GAO’s analysis of Amtrak’s data.



[End of table]



Employees and Other Unsecured Creditors Would Also Likely Have Had 

Unsatisfied Claims:



As of December 31, 2001, Amtrak’s data showed that unsecured 

liabilities totaled about $4.4 billion. (See table 4.) About 70 percent 

of this amount would have been for labor protection payments if Amtrak 

had been liquidated. The largest remaining obligations were for 

materials and services provided by vendors ($304 million), unpaid 

employees’ wages and vacation and sick pay ($278 million), and injury 

claims from passengers, employees, and others ($218 million). In the 

event of liquidation, the payment of unsecured creditors’ claims would 

have been even more doubtful than those of secured creditors.[Footnote 

20]



Table 4: Unsecured Liabilities in the Event That Amtrak Had Been 

Liquidated on December 31, 2001:



Dollars in millions.



Potential claimant: Employees; Nature of payment owed: Labor 

protection payments due for job loss under collective bargaining 

agreements; Amount owed: $3,168.



Potential claimant: Vendors; Nature of payment owed: Accrued 

expenses for goods and services; Nature of payment owed: Labor 

protection payments due for job loss under collective bargaining 

agreements: 304.



Potential claimant: Employees; Nature of payment owed: Unpaid 

wages, vacation pay, and sick leave; Nature of payment owed: 

Labor protection payments due for job loss under collective 

bargaining agreements: 278.



Potential claimant: Injured passengers, employees, and others; 

Nature of payment owed: Estimated payments for claims filed for 

personal injury and wrongful deaths resulting from Amtrak’s 

operations; Nature of payment owed: Labor protection payments 

due for job loss under collective bargaining agreements: 218[A].



Potential claimant: Landlords; Nature of payment owed: Rent 

due for station and office space under noncancellable, long-term 

leases; Nature of payment owed: Labor protection payments due 

for job loss under collective bargaining agreements: 201.



Potential claimant: Retired employees and employees eligible to 

retire; Nature of payment owed: Postretirement medical benefits; 

Nature of payment owed: Labor protection payments due for job 

loss under collective bargaining agreements: 150.



Potential claimant: Passengers; Nature of payment owed: Refunds 

for cash paid for reservations in advance of travel; Nature of 

payment owed: Labor protection payments due for job loss under 

collective bargaining agreements: 67.



Potential claimant: Environmental Protection Agency, local 

governments; Nature of payment owed: Estimated cost for environmental 

cleanup work; Nature of payment owed: Labor protection payments 

due for job loss under collective bargaining agreements: 32[B].



Potential claimant: Line of credit providers; Nature of payment 

owed: Security for contract performance and for repayment of 

short-term cash loans for operating expenses; Nature of payment 

owed: Labor protection payments due for job loss under collective 

bargaining agreements: 11[C].



Potential claimant: Commuter agencies, railroads, and other customers; 

Nature of payment owed: Refunds for advances and overpayments for 

services such as maintenance-of-way work performed by Amtrak; Nature 

of payment owed: Labor protection payments due for job loss under 

collective bargaining agreements: 9.



Potential claimant: Railroad Retirement Board; Nature of payment 

owed: Railroad unemployment tax payments; Nature of payment owed: 

Labor protection payments due for job loss under collective bargaining 

agreements: 2.



Potential claimant: Total; Nature of payment owed: [Empty]; Nature 

of payment owed: Labor protection payments due for job loss under 

collective bargaining 

agreements: $4,440.



[A] According to Amtrak, this amount is based on an actuarial estimate 

of actual and potential claims that might be filed. This includes 

claims filed under the Federal Employers’ Liability Act.



[B] Estimate based on instances in which Amtrak has been identified as 

responsible for cleanup costs.



[C] This item is part of a $270 million line of credit that Amtrak 

maintains with various lenders. This line of credit is used to secure 

the performance of contracts Amtrak enters into, as well as to pay 

operating expenses.



Source: GAO’s analysis of Amtrak’s data.



[End of table]



The amount of labor protection payments represents the biggest 

difference between the unsecured creditor claims that were included in 

our 1998 report on this issue and current estimates. In 1998, we 

reported that labor protection obligations as of September 1997 could 

have been about $6 billion if Amtrak had been liquidated, or about $2.9 

billion more than the amount that Amtrak estimates could have been due 

on December 31, 2001. This difference stems from changes made by the 

Amtrak Reform and Accountability Act of 1997. The act eliminated the 

statutory right to labor protection, made labor protection subject to 

collective bargaining, and required Amtrak to negotiate new labor 

protection arrangements with its employees. After Amtrak and unions 

could not reach agreement, an October 1999 arbitration decision (1) 

capped labor protection payments at a 5-year maximum (rather than 6 

years, as under the statutory labor protection arrangement); (2) made 

employees who had less than 2 years of service ineligible for payments; 

and (3) based payments on a sliding scale that provided less payout for 

each year worked than did the previous system. (See table 5.) Amtrak 

indicated that $1.8 billion of the cost difference between 1997 and 

2001 is attributable to these changes. Another $950 million in the 

difference between the earlier and current estimates is attributable to 

management employees who were no longer eligible for labor protection 

after 1997. According to Amtrak, management eligibility for labor 

protection ended in 1997 because management employees were not 

represented by a formal labor organization and, therefore, could not 

bargain for new labor protection arrangements as required by the Amtrak 

Reform and Accountability Act of 1997. Amtrak officials noted that the 

act provided for no process to determine substitute protection for 

these employees.[Footnote 21]



Table 5: Estimated Cost of Labor Protection, as of December 31, 2001:



Dollars in millions.



Years employed by Amtrak: Fewer than 2; Number of employees[A]: 

1,804; Total estimated cost (wages and benefits): $0[B].



Years employed by Amtrak: 2 to 3; Number of employees[A]: 1,106; 

Total estimated cost (wages and benefits): 32.



Years employed by Amtrak: 3 to 5; Number of employees[A]: 2,087; 

Total estimated cost (wages and benefits): 134.



Years employed by Amtrak: 5 to 10; Number of employees[A]: 2,464; 

Total estimated cost (wages and benefits): 268.



Years employed by Amtrak: 10 to 15; Number of employees[A]: 3,858; 

Total estimated cost (wages and benefits): 606.



Years employed by Amtrak: 15 to 20; Number of employees[A]: 2,585; 

Total estimated cost (wages and benefits): 668.



Years employed by Amtrak: 20 to 25; Number of employees[A]: 2,180; 

Total estimated cost (wages and benefits): 594.



Years employed by Amtrak: 26 or more; Number of employees[A]: 2,452; 

Total estimated cost (wages and benefits): 866.



Years employed by Amtrak: Total; Number of employees[A]: 18,536; 

Total estimated cost (wages and benefits): $3,168.



[A] Amounts do not include employees on furlough at December 31, 2001 

(approximately 500 employees), management employees (approximately 

2,700 employees), or employees in commuter rail service (approximately 

2,600 employees). According to Amtrak, these employees are not eligible 

for labor protection. Amounts also exclude employees doing work for 

which Amtrak is reimbursed, such as maintaining railcars for transit 

agencies (410 employees). In June 2002, an arbitration panel ruled that 

Amtrak is not responsible for labor protection for these employees if 

they lose their jobs.



[B] Employees with fewer than 2 years of service are not eligible for 

labor protection payments.



Source: GAO’s analysis of Amtrak’s data.



[End of table]



Included in Amtrak’s estimate of labor protection costs is about $70 

million for 423 employees who work on trains that receive state 

financial support. In June 2002, an arbitration panel determined that 

Amtrak would be responsible for labor protection payments for these 

employees should they lose their jobs because Amtrak decides to 

discontinue state-supported train service. However, the panel 

determined that Amtrak’s potential liability would be only one-third of 

the amount provided to employees on other routes if discontinuation of 

such service were solely a state’s decision.



Satisfying more than a small amount of unsecured creditor claims in 

liquidation would be difficult at best. Unsecured creditors depend 

entirely on the proceeds from the sale of Amtrak’s available assets 

that remain after secured assets are sold to satisfy secured creditor 

interests. As of December 31, 2001, all of Amtrak’s rolling stock was 

encumbered by liens and would not have been available to satisfy 

unsecured creditor claims. In addition, it is uncertain whether 

Amtrak’s real property, such as that on the Northeast Corridor, would 

be available for sale to satisfy unsecured creditor claims either. That 

is because the federal mortgage on this real property would become due 

and payable if Amtrak filed for bankruptcy and were liquidated. In this 

event, the federal government could take ownership of this property in 

lieu of foreclosure. To the extent that the value of the Northeast 

Corridor is insufficient to fully satisfy the federal security 

interest, the assets of the Northeast Corridor would be unavailable to 

satisfy unsecured creditor claims.



Unsecured creditors would likely have to rely on other sources of 

payment, such as the sale of receivables due to Amtrak (for example, 

amounts due from travel agents and credit card companies that 

participate in the sale of Amtrak’s tickets) or the sale of materials 

and supplies (for example, spare parts and fuel). As of December 31, 

2001, these other assets totaled about $218 million. Amtrak estimates 

that between $59 million and $90.7 million of its receivables (65 to 

100 percent of their value) might be recovered in cash. In contrast, 

much of Amtrak’s spare parts inventory is unique to Amtrak’s 

operations, and Amtrak estimates that only about 35 percent ($44.5 

million) of the $127.1 million on Amtrak’s balance sheet for materials 

and supplies might be recovered. Given this situation, it is likely 

that unsecured creditors would receive little for their claims.



Shareholders Would Have Been Unlikely to Receive Money for Stock 

Holdings:



The U.S. government holds all of Amtrak’s preferred stock, and four 

corporations hold Amtrak’s common stock.[Footnote 22] The preferred and 

common stock had recorded values of about $10.9 billion and $94 

million, respectively, as of December 31, 2001. In addition, in 

accordance with Amtrak’s enabling legislation and its articles of 

incorporation, preferred stock holders were entitled to an annual 

cumulative dividend of at least 6 percent until 1997, when the statute 

was amended to eliminate the requirement that preferred stock holders 

are entitled to dividends.[Footnote 23] Although no dividend has ever 

been declared or paid, Amtrak has calculated the cumulative unpaid 

preferred stock dividends from 1981 to 1997 to be about $6.2 billion. 

In a liquidation, the amount of the preferred stock holders’ interest 

would include all cumulative unpaid dividends. Thus, the total 

stockholder interest for the federal government as the sole preferred 

stock holder is about $17.1 billion. These stockholder interests would 

not get paid until after secured, unsecured, and administrative 

expenses relating to liquidating the estate were satisfied.



As discussed earlier, it is not likely that secured or unsecured 

creditor claims would have been fully satisfied had Amtrak been 

liquidated. The amount of the stockholder interest is the total of the 

recorded value of the common and preferred stock, plus the cumulative 

unpaid preferred stock dividends. However, in determining how much 

these stockholders would get paid is dependent on the value of Amtrak’s 

assets after creditors’ claims are paid, which would include (or be 

offset by) the amount of Amtrak’s retained earnings (or cumulative 

losses). As of December 31, 2001, Amtrak’s cumulative deficit was $16 

billion, which represents its cumulative losses. As a result of these 

factors, it is not likely that either the federal government or common 

stock holders would have received any money for their stock holdings if 

Amtrak had been liquidated.[Footnote 24]



United States Would Not Be Liable for Creditors’ Claims:



We have concluded that the United States would not be legally liable 

for either secured or unsecured creditors’ claims in the event of an 

Amtrak liquidation. There are two primary reasons. First, the federal 

government is not a party to contracts between Amtrak and its 

creditors. Second, Amtrak is not a department, agency, or 

instrumentality of the U.S. government, and there is no explicit or 

implicit commitment by the United States to assume these obligations. 

Therefore, any losses experienced by Amtrak’s creditors would be borne 

in full by the creditors themselves or their insurance companies. 

Nevertheless, we recognize that creditors may attempt to recover losses 

from the U.S. government.[Footnote 25]



Liquidation Would Have Adversely Affected the Railroad Retirement and 

Unemployment Systems:



The Railroad Retirement Board estimated that Amtrak’s liquidation would 

have caused the railroad retirement system to run out of funds in 2024 

if all Amtrak employees had lost their jobs and were not reemployed in 

the railroad industry.[Footnote 26] To forestall this result, the Board 

estimated that the rates contained in the tier II tax rate schedule 

would have had to be increased 1.64 percentage points over those 

planned, resulting in a rise from 20.5 percent and 23.0 percent, 

respectively, to about 22.1 percent and 24.6 percent in calendar years 

2002 and 2023.[Footnote 27] These are between 7 and 8 percent 

increases. Rates would have continued to be higher in subsequent years. 

In addition, the railroad unemployment system would have had to borrow 

over $300 million to make benefit payments and remain financially 

solvent. (All amounts are in constant 2001 dollars, unless otherwise 

stated.):



Amtrak Liquidation Would Have Depleted the Railroad Retirement Fund:



Since the retirement system is on a modified pay-as-you-go basis, the 

financial health of the system largely depends on the size of the 

railroad workforce, the taxes derived from this workforce, and the 

amount of benefits paid to retired and disabled individuals and their 

beneficiaries. Payroll taxes levied on employers and employees are the 

primary source of the retirement system’s income. In 2001, Amtrak paid 

about $428 million in payroll taxes into the railroad retirement 

account (about 9 percent of the total receipts for the year).



A loss of Amtrak’s contribution would have had a significant financial 

impact on the system. The Board estimated that, if Amtrak had been 

liquidated on December 31, 2001, and no action had been taken to 

increase tier II payroll taxes beyond that already planned or to reduce 

benefit levels, the railroad retirement account would start to decline 

in 2006 and would first have a negative balance (of $742 million) in 

2024.[Footnote 28] (See fig. 3.):



Figure 3: Balance of Railroad Retirement Account in the Event That 

Amtrak Had Been Liquidated on December 31, 2001:



[See PDF for image]



Source: GAO’s analysis of the Railroad Retirement Board’s data.



[End of figure]



If tier II taxes had been increased immediately (that is, in 2002) to 

offset expected deficits beginning in 2024, the Board determined that 

tier II tax rates would have had to increase from a baseline of 20.5 

percent of earnings (if Amtrak had not been liquidated) to about 22.1 

percent in 2002--an increase of 8 percent. (See fig. 4.) The rate would 

have decreased somewhat in 2003 before leveling off through 2018. In 

all cases, the Board estimated that rates would be 1.64 percentage 

points greater than if Amtrak did not undergo liquidation. After 2018, 

the rate would have increased to about 24.6 percent in 2023 (about 7 

percent greater than the baseline rate of 23.0 percent).[Footnote 29] 

Although these actions would have kept the fund from having a negative 

balance, fund balances would have decreased markedly to $3.9 billion in 

2024, according to the Board.[Footnote 30]



Figure 4: Estimated Changes in Tax Rates in the Event That Amtrak Had 

Been Liquidated on December 31, 2001:



[See PDF for image]



Source: GAO’s analysis of the Railroad Retirement Board’s data.



[End of figure]



An Amtrak liquidation could also have affected tier I tax revenues and 

benefit payments. These are the social security equivalent components 

of railroad retirement. The Board estimated that if Amtrak had been 

liquidated on December 31, 2001, tier I tax revenues would have 

decreased beginning in 2002 (about $200 million), and the shortfalls 

would have increased each year until 2024, when lost revenue would 

total about $310 million.[Footnote 31] Similarly, the Board estimated 

that benefit payments would also have changed. From 2002 through 2005, 

benefits would have increased slightly--up to $6 million in 2002 and 

2003--as the result of Amtrak employees’ retiring and beginning to 

collect benefit payments. Beginning in 2006 benefit payments would have 

decreased each year until 2024, when the reduction would have been 

about $160 million.[Footnote 32] Benefits would decrease because Amtrak 

employees would no longer be earning tier I service credits and 

therefore would not be entitled to tier I benefits. Board officials 

told us that an Amtrak liquidation would have had little impact on the 

administration of tier I taxes and benefits, since the Board would 

adjust (1) the amounts of monthly advances that it receives from 

Treasury to make expected benefit payments and (2) the annual 

reconciliation with the Social Security Administration and the Center 

for Medicare and Medicaid Services for taxes received and benefits paid 

(called the “financial interchange”). Social Security Administration 

officials agreed. They also said that the overall impact on the Social 

Security Trust Fund would likely have been slight, since tier I tax 

revenues and benefit payments make up a very small portion of total 

social security tax receipts and payments.



Adverse Effects on Railroad Unemployment System Would Be Short-Term:



Finally, participants in the railroad unemployment system would also 

have been adversely affected by an Amtrak liquidation. Financial 

effects would have been immediate, but short-term. The Board estimated 

that if Amtrak had been liquidated on December 31, 2001, separated 

Amtrak employees would have received a total of $344 million in benefit 

payments during fiscal years 2002 and 2003. The cash reserves of the 

unemployment system would have been exhausted in 2002, and a total of 

$338 million would have to have been borrowed from the railroad 

retirement account, as permitted by statute, from 2002 through 2004 to 

make these benefit payments. The peak loan balance would have been $349 

million, including interest, with all loans repaid in 2005. In order to 

pay for these benefits and repay the loans, the Board would have had to 

require that other railroads and participants in the unemployment 

system increase their payroll tax contributions. According to the 

Board, between 2002 and 2004, the average tax rate would have had to 

increase from about 4 percent to 12.5 percent--before decreasing to 9.6 

percent in 2005.[Footnote 33]



Agency Comments and Our Evaluation:



We provided a draft of this report to Amtrak, the Department of 

Transportation, and the Railroad Retirement Board for their review and 

comment. Amtrak provided its comments in a meeting with its Vice 

President for Financial Analysis (and others) and in a subsequent 

letter (see app. II). Amtrak stated that it was in general agreement 

with the draft report and that the report fairly represented the costs 

and ramifications of an Amtrak liquidation. However, Amtrak believed 

that there would be material consequences of liquidation about which 

the draft report is silent. In Amtrak’s estimation, a liquidation could 

burden commuter and freight railroads (especially on the Northeast 

Corridor) with substantial operating and capital costs--about $600 

million annually. We agree that the potential financial and operational 

impacts on commuter and freight railroads could be substantial if 

Amtrak were to be liquidated. We acknowledged this impact both in the 

draft report supplied to Amtrak for comment and in this final report.



Amtrak also believed that we did not provide sufficient information on 

the costs associated with administering an Amtrak liquidation. Amtrak 

estimated that these costs would range anywhere from $250 million to 

$360 million. We agree that there could be substantial costs associated 

with administering liquidation. However, this report is not intended to 

estimate the administrative costs of liquidating Amtrak.



Finally, in our meeting, Amtrak officials noted that the interest of 

the preferred stock holder (the U.S. government) would be about $6 

billion more than the $10.9 billion we originally estimated in the 

draft report. This figure represents the cumulative dividends on this 

stock between 1981 and 1997 that Amtrak never declared or paid. In 

Amtrak’s opinion, although the Amtrak Reform and Accountability Act of 

1997 eliminated the statutory requirement for these dividends after 

1997, it did not abrogate the 

$6 billion in cumulative dividends during that period--an amount that 

Amtrak believes would increase preferred stock holder interest in a 

liquidation. We noted that this $6 billion was not expressly disclosed 

in Amtrak’s financial statements, including its draft 2001 financial 

statements, and brought this to Amtrak’s, and its external auditor’s, 

attention for possible future disclosure. We agree that upon 

liquidation the preferred stock holder interest would include the $6 

billion in cumulative dividends. As a result, we have revised this 

final report to include the $6 billion both in the total amount of 

potential creditor claims and stockholder interests were Amtrak to have 

been liquidated as of December 31, 2001, and in those sections of the 

report discussing preferred stock holder interests. Amtrak offered 

additional clarifying, editorial, and technical comments that were 

incorporated as appropriate.



The Department of Transportation, in oral comments made by Federal 

Railroad Administration officials, including the Associate 

Administrator for Railroad Development, did not express an overall 

opinion about the report. Instead, it offered comments designed to 

clarify specific points in the draft report. These included 

clarification that the lien securing the original equipment note 

required the federal government to subordinate its interest on the 

equipment acquired by Amtrak after 1983 in individual transactions to 

the security interests of Amtrak’s equipment creditors in these 

transactions; that is, the subordination was not discretionary. It also 

included clarification that any unemployment insurance benefits 

received by Amtrak employees as the result of a liquidation would 

reduce their labor protection claims by an equal amount. With few 

exceptions we incorporated these comments into our report.



The Railroad Retirement Board provided comments by E-mail from its 

General Counsel. These comments were largely clarifying and technical 

in nature and, with few exceptions, were incorporated into the report. 

One of the more significant was the comment that railroad unemployment 

insurance claims are accorded priority in bankruptcy and that, in 

liquidation, Amtrak’s railroad unemployment insurance costs would be 

borne by other rail employers.



Scope and Methodology:



To identify the potential financial issues of an Amtrak liquidation on 

the federal government, Amtrak employees, and other creditors, we 

obtained information from Amtrak about potential secured and unsecured 

creditor claims and equity interests held by preferred and common stock 

holders, analyzed Amtrak’s records regarding property and equipment 

leases and debt instruments, and discussed labor protection issues with 

Amtrak officials. We also reviewed copies of federal mortgages and 

liens held on Amtrak property and equipment, and discussed with Federal 

Railroad Administration officials how the federal interest in Amtrak’s 

assets had changed since we reported on this issue in 1998. We reviewed 

a draft Amtrak analysis of the cost of liquidating the corporation, 

prepared in March 2002. We obtained information on various aspects of 

this analysis from Amtrak, including how certain cost estimates were 

determined.



We assumed that Amtrak liquidation had occurred on December 31, 2001, 

which was the latest date for which Amtrak had information on its 

assets and liabilities at the time of our review. We updated financial 

information in this report to take into account adjustments made by 

Amtrak through August 2002 as the result of its annual audit. However, 

the audit report had not been issued as of early September 

2002.[Footnote 34] (Amtrak’s fiscal year ends on September 30.):



To assess how the railroad retirement and unemployment systems might be 

affected by liquidation, we asked the Railroad Retirement Board to 

estimate the potential financial effects of a 100 percent decline in 

Amtrak employment on the railroad retirement and unemployment systems. 

Additionally, the Board assumed that terminated workers would not be 

reemployed in the railroad industry. We chose these assumptions because 

a 100 percent decline in Amtrak employment is consistent with a 

liquidation of the company. In addition, the assumption that terminated 

workers would not be reemployed in the industry is consistent with the 

fact that industry employment has generally been falling over the past 

decade, and the Railroad Retirement Board projects that industry 

employment will continue to decline. This analysis included 

consideration of changes in the system stemming from the Railroad 

Retirement and Survivors’ Improvement Act of 2001. We discussed with 

Board officials both the results of this analysis and the assumptions 

used to prepare it.



We did not independently estimate the costs associated with Amtrak’s 

liquidation, including developing or obtaining estimates of the market 

value of Amtrak’s assets. Nor did we independently verify the Board’s 

analysis of the financial effects on the railroad retirement and 

unemployment systems from a potential Amtrak liquidation. We also did 

not attempt to quantify the costs of indirect effects, if any, such as 

changes in highway and aviation congestion, air quality, or energy 

consumption associated with Amtrak’s liquidation. We performed our work 

from January 2002 to September 2002 in accordance with generally 

accepted government auditing standards.



As agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution until 21 days 

from the report date. At that time, we will send copies of this report 

to congressional committees with responsibilities for intercity 

passenger rail issues; the President of Amtrak; the Secretary of 

Transportation; the Administrator, Federal Railroad Administration; 

and the Director, Office of Management and Budget. We also will make 

copies available to others upon request. In addition, the report will 

be available at no charge on the GAO Web site at http://www.gao.gov.



If you or your staff have any questions about this report, please 

contact either James Ratzenberger at ratzenbergerj@gao.gov or me at 

heckerj@gao.gov. Alternatively, we may be reached at (202) 512-2834. 

Key contributors to this report included John Fretwell, Richard 

Jorgenson, Oscar Mardis, Chanetta Ramey Reed, James Ratzenberger, Peggy 

Smith, and Stacey Thompson.



Sincerely yours,



JayEtta Z. Hecker

Director, Physical Infrastructure Issues:



Signed by JayEtta Z. Hecker:



[End of section]



Appendix I: Significant Aspects of the Railroad Bankruptcy Process:



Chapter 11 of the Bankruptcy Code, which generally sets out the 

procedures for reorganization, would govern an Amtrak bankruptcy. For 

the most part, the provisions of chapter 11 applicable to corporate 

reorganizations would apply to Amtrak, as would several additional 

provisions applicable only to railroads. Because of the historical 

importance of railroads to the economy and the public, bankruptcy law 

seeks, among other things, to protect the public interest in continued 

rail service. In applying certain sections of the Bankruptcy Code, the 

court and an appointed trustee of Amtrak’s estate would be required to 

consider the public interest as well as the interests of Amtrak, its 

creditors, and its stockholders. A trustee must be appointed in all 

railroad cases.



Amtrak could initiate a bankruptcy proceeding by filing a voluntary 

petition for bankruptcy when authorized by its board of directors. In 

addition, three or more of Amtrak’s creditors whose unsecured claims 

totaled at least $10,000 could file an involuntary petition.[Footnote 

35] After a petition was filed, a trustee would be appointed. This 

individual would be chosen from a list of five disinterested persons 

willing and qualified to serve. The Secretary of Transportation would 

submit this list to the U.S. Trustee (an official in the Department of 

Justice) for the region in which the petition was filed. The trustee 

would become the administrator of the debtor’s estate and, with court 

approval, would be likely to hire attorneys, accountants, appraisers, 

and other professionals who would be disinterested persons to assist 

with the administration of the estate.



Once appointed, the trustee, with court oversight, rather than Amtrak’s 

board of directors would make decisions about the railroad’s operations 

and financial commitments.[Footnote 36] The trustee would have to 

decide quickly whether Amtrak could continue to maintain adequate staff 

for operations. In addition, the trustee would have to decide whether 

Amtrak would need rolling stock equipment, such as passenger cars and 

locomotives, subject to creditors’ interests for its operations, and if 

so, would have to obtain any financing necessary to maintain possession 

of such equipment. Unless the trustee “cured” any default--that is, 

continued payments--and agreed to perform obligations associated with 

Amtrak’s rolling stock equipment within 60 days of the bankruptcy 

petition, creditors with an interest in the equipment, such as lessors 

and secured lenders, could repossess it.[Footnote 37]



Furthermore, the trustee would have to decide whether to assume or 

reject Amtrak’s obligations under executory contracts and unexpired 

leases.[Footnote 38] To assume a contract or lease on which Amtrak was 

in default, the trustee would have to (1) cure the default or provide 

adequate assurance that it would be cured,[Footnote 39] (2) compensate 

the other party or assure the other party of compensation for actual 

pecuniary losses resulting from the default, and (3) provide adequate 

assurance of future performance.[Footnote 40] In this context, a 

trustee could try to negotiate more favorable terms than under Amtrak’s 

existing contracts and leases. However, the availability of cash for 

the costs associated with contracts and leases would again be a 

critical element in the trustee’s decisionmaking. Although payments on 

assumed contracts or leases would be expenses of the estate, payments 

due on rejected contracts and leases, as well as any damages and 

penalties, would give rise to general unsecured claims.



In addition, the trustee would have to decide whether to avoid--that 

is, set aside--certain transactions between Amtrak and its creditors. 

Generally, the trustee could set aside Amtrak’s transfers of money or 

property for preexisting debts made within 90 days of the bankruptcy 

petition, as long as Amtrak was insolvent at the time of the transfer 

and the creditor received more as a result of the transfer than it 

would receive in a bankruptcy proceeding. However, the trustee would 

not have unlimited authority in this area. For example, the trustee 

could not set aside a transfer that was intended by Amtrak and a 

creditor to be a contemporaneous exchange for new value and that was in 

fact a substantially contemporaneous exchange.



Although the trustee would have considerable authority over Amtrak’s 

operations and financial commitments, neither the trustee nor the court 

could unilaterally impose changes in the wages or working conditions of 

Amtrak’s employees who are covered by collective bargaining 

agreements.[Footnote 41] The employees could voluntarily agree to such 

changes, perhaps in an effort to avoid or forestall liquidation. 

Otherwise, the trustee would have to seek changes in wages and working 

conditions by following procedures specified in the Railway Labor Act, 

including those for notice, mediation, and binding arbitration with the 

consent of the parties.



Perhaps the trustee’s most significant responsibility would be to 

develop a plan of reorganization. The provisions of chapter 11 

applicable to reorganization plans would, for the most part, apply to 

Amtrak. Therefore, among other things, a reorganization plan would have 

to (1) designate classes of claims (other than certain priority claims) 

and interests;[Footnote 42] (2) specify the unimpaired classes of 

claims or interests; (3) explain how the plan would treat impaired 

classes of claims or interests;[Footnote 43] and (4) provide adequate 

means for its implementation. Furthermore, the plan would have to 

indicate whether and how rail service would be continued or terminated, 

and could provide for the transfer or abandonment of operating lines. 

Notably, the trustee could propose a plan to liquidate all or 

substantially all of Amtrak’s assets.



Certain unsecured claims would have to be accorded priority in an 

Amtrak reorganization plan, as in any corporate reorganization plan. 

For example, administrative claims, such as those for postpetition 

expenses of the estate and reasonable compensation for the trustee and 

professionals engaged by the trustee, would have to be paid in full on 

the effective date of the plan, unless the holder of a claim agreed to 

an alternative arrangement. Other priority unsecured claims, such as 

those for wages and contributions to employee benefit plans,[Footnote 

44] would also have to be paid in full on the effective date of the 

plan, unless each class of claimants accepted a plan providing for 

deferred payments. In addition, under Bankruptcy Code provisions 

specifically applicable to railroads, claims for personal injury or 

wrongful death arising out of Amtrak’s operations, either before or 

after the filing of a bankruptcy petition, would have to be treated as 

administrative claims. Furthermore, certain trade claims arising no 

more than 6 months prior to the bankruptcy petition would also have 

priority.[Footnote 45] Finally, the court could require the payment of 

amounts due other railroads for the shared use of lines or cars, known 

as “interline service.”:



After full disclosure of its contents, Amtrak’s creditors and 

shareholders would vote on the plan of reorganization.[Footnote 46] 

Because the United States is a creditor and stockholder of Amtrak, the 

Secretary of the Treasury would accept or reject the plan on behalf of 

the United States. According to the Federal Railroad Administration, 

the Attorney General and the Secretary of Transportation would be 

consulted. However, a plan of reorganization could not be implemented 

unless confirmed by the court. To confirm the plan, the court would 

have to find, among other things, either that each class of impaired 

claims or interests had accepted it or that the plan did not 

discriminate unfairly, and was fair and equitable, with respect to each 

class of impaired claims or interests that had not accepted it.



In addition, under provisions of the Bankruptcy Code specifically 

applicable to railroad cases, the court would have to find that each 

Amtrak creditor or shareholder would receive or retain no less under 

the plan than it would receive or retain if all of Amtrak’s operating 

lines were sold and the proceeds of such sale, and other estate 

property, were distributed under a chapter 7 liquidation. Finally, the 

court would have to find that Amtrak’s prospective earnings would 

adequately cover any fixed charges, and that the plan was consistent 

with the public interest. If more than one reorganization plan met 

these requirements, the court would be required to confirm the plan 

most likely to maintain adequate rail service in the public interest. 

Following confirmation of a reorganization plan, Amtrak would be 

discharged from its debts.



If an Amtrak reorganization plan were not confirmed within 5 years of 

the bankruptcy petition, the court would have to order liquidation. 

However, the court could order liquidation earlier, upon the request of 

a party in interest, after notice and hearing, if it determined 

liquidation to be in the public interest. Under such circumstances, the 

trustee would distribute the assets of the estate as though the case 

were a liquidation under chapter 7. Because the case would not be 

converted to a proceeding under chapter 7, relevant provisions of 

chapter 11 applicable to railroads would continue to apply.



In a liquidation, the trustee would turn over collateral or make 

payments to the proper secured creditors,[Footnote 47] convert 

remaining property to cash, and distribute the proceeds to the 

unsecured creditors in accordance with the distribution scheme 

contained in chapter 7. Proceeds would be distributed in the following 

order: priority unsecured claims, including those discussed above, in 

specified order; general unsecured claims, timely and tardily filed; 

fines, penalties, and damages that are not compensation for pecuniary 

loss; and postpetition interest on claims previously paid. Claims of a 

higher priority would have to be provided for before claims of a lower 

priority. In addition, in most cases, if the holders of claims in a 

class could not be paid in full, claims would have to be paid on a pro 

rata basis.



[End of section]



Appendix II: Comments from the National Railroad Passenger Corporation:



NATIONAL RAILROAD PASStNGER CORPORATION:



AMTRAK:



September 9, 2002:



Ms. JayEtta Z. Hecker:



Director, Physical Infrastructure Issues U.S. General Accounting Office 

Washington, DC 20548:



Dear Ms. Hecker:



Amtrak is in general agreement with GAO Report No. GAO-02-871, entitled 

“Intercity Passenger Rail: Potential Financial Issues if Amtrak 

Undergoes Liquidation.” Given the scope of the request, the report 

fairly represents the costs and complex ramifications of a theoretical 

liquidation of Amtrak. However, there are some material consequences to 

an Amtrak liquidation that the GAO was asked to not comment on. Amtrak 

strongly feels that two of these consequences deserve clarification and 

comment so that all aspects of a liquidation can be understood.



First and foremost, if Amtrak were to cease operations due to a 

liquidation, the operational and financial burden placed on the 

numerous commuter and freight railroads that rely on Amtrak for items 

such as dispatching, crews, maintenance and right-of-way on the 

Northeast Corridor (“NEC”) would be tremendous. Amtrak estimates that 

even after downgrading the level of utility and NEC operations and 

subsequent degrading of the quality of the track infrastructure 

[Footnote 1], the shift in cost to the commuter agencies and freights 

will still be substantial. To the commuter agencies, the annual 

operating and capital cost would be $592.3 million. The $592.3 

million figure includes $258.7 million for capital backlog costs

[Footnote 2]. Reduce this by the $123.3 million in fees paid to 

Amtrak and the net additional cost to the commuter agencies is $469 

million. Similarly, freight railroads would have to absorb $37.4 

million in annual operating costs, $55.4 million in ongoing capital 

costs, $39.5 million in capital backlog costs, less the $14.9 million 

in access fees paid, for a total of $117.4 million annually.



Second, the report is silent on the substantial costs associated with 

administering a liquidation of a Company as large as Amtrak. Amtrak has 

estimated that the administrative costs of a liquidation (for such 

items as legal fees, direct operating costs of shutting down the 

infrastructure, security costs and fees associated with liquidating 

Amtrak’s remaining assets) at $250 to $360 million.



Over the past few years, Amtrak and the GAO have worked closely on the 

development of a number of reports covering many different facets of 

Amtrak and intercity rail passenger service. Amtrak appreciates the 

work of the GAO’s staff, particularly their careful attention to 

detail, professionalism and their consultative process. This report is 

the result of a significant amount of labor, and notwithstanding the 

few comments above, Amtrak commends the GAO for the quality and 

thoroughness of this report.



Sincerely, 



Jim McHugh Vice President Government Affairs:



Signed by Jim McHugh:



[1]: With the elimination of Amtrak service on the NEC, 

operating and capital costs would decrease overall before they were 

allocated between the remaining commuter and freight users. Key 

reductions in the NEC infrastructure include: 27 percent of track 

miles are eliminated on the corridor; speeds are reduced 12 percent 

as track is changed from class 7 to class 4 tracks; 20 percent 

reduction in electric catenary maintenance; 26 percent reduction in 

various support facilities; 46 percent reduction in yard operations; 

40-50 percent reduction in station facilities expenses.



[2] Excluding the capital backlog cost, the increase to 

commuters is estimated at $333.6 million for operating and ongoing 

capital only.





[End of section]



FOOTNOTES



[1] Among other things, Congress will need to consider whether and how 

intercity passenger rail can complement other modes of transportation 

as part of our national transportation network. See U.S. General 

Accounting Office, Intercity Passenger Rail: Congress Faces Critical 

Decisions in Developing a National Policy, GAO-02-522T (Washington, 

D.C.:

Apr. 11, 2002).



[2] Amtrak participates in the railroad retirement system, under which 

each participating railroad pays a portion of the total railroad 

retirement benefit costs for industry employees.



[3] The act also required the Amtrak Reform Council to develop and 

submit to Congress an action plan for a restructured and rationalized 

national intercity passenger rail system. Congress was not required to 

act on either plan.



[4] Intercity Passenger Rail: Issues Associated with a Possible Amtrak 

Liquidation, GAO/RCED-98-60 (Washington, D.C.: Mar. 2, 1998).



[5] For purposes of this report, the “railroad retirement account” 

refers to amounts included in the Railroad Retirement Account, the 

Social Security Equivalent Benefit Account, and the National Railroad 

Retirement Investment Trust created by the Railroad Retirement and 

Survivors’ Improvement Act of 2001.



[6] See GAO-02-522T and GAO/RCED-98-60.



[7] The Board, which administers the railroad retirement and 

unemployment systems for Amtrak and other railroads, is an independent 

agency of the federal government established in the 1930s. In 2001, 

preliminary estimates showed that these systems covered about 272,000 

active workers, of which Amtrak had about 10 percent (or about 27,300 

employees). Active workers are those workers with at least one reported 

service month during 2001 and, in Amtrak’s case, whose last reported 

employer was Amtrak. Active workers can include temporary workers as 

well as employees who worked for more than one railroad employer, 

including Amtrak.



[8] In 2001 dollars, Congress has provided Amtrak with about $40 

billion from 1971 to 2002.



[9] The Railroad Retirement Act provides for a supplemental annuity for 

certain employees who performed railroad service in at least one month 

prior to October 1, 1981. This annuity was funded entirely through a 

work-hour tax on employers and was paid from a separate Railroad 

Retirement Supplemental Account. The Railroad Retirement and Survivors’ 

Improvement Act of 2001 repealed both the tax and the supplemental 

account. However, supplemental annuities will continue to be paid to 

those who are eligible, from the railroad retirement account.



[10] In addition, three or more of Amtrak’s creditors whose unsecured 

claims total at least $10,000 could file a petition for Amtrak to be 

placed in bankruptcy involuntarily. 



[11] For purposes of this report, secured claims include claims 

supported by collateral (such as passenger cars and locomotives) or 

representing capital lease obligations.



[12] Amtrak’s creditors include lessors. For financial reporting 

purposes, most Amtrak leases are classified as capital leases, and the 

leased property and equipment are reported as Amtrak assets, with a 

related lease liability obligation. In general, Amtrak does not own the 

leased property and equipment but rather has the rights to use them 

under the terms of the lease.



[13] In the event of liquidation, the trustee may file a plan that 

could cure all defaults and reinstate the original maturity date of the 

note, and the bankruptcy court would then consider whether to approve 

such a plan. For purposes of this report, however, we examined the 

potential claims against Amtrak in the event of Amtrak’s bankruptcy, or 

other default, leading to liquidation. In this event, the acceleration 

clause of the note would take effect.



[14] We discussed with the Federal Railroad Administration their 

concern about the applicability of section 365(e)(1) of Title 11 of the 

United States Code to the acceleration clause in this note. This 

provision prohibits the acceleration of debt due to (1) insolvency or 

financial condition of the debtor, (2) commencement of a bankruptcy 

case, or (3) appointment of a trustee. However, this section of the 

Bankruptcy Code pertains to executory contracts and unexpired leases. 

The Chief Counsel of the Federal Railroad Administration believes, and 

we agree, that this section of the Code should not apply to make the 

acceleration clause unenforceable, because it is found within a note. 

Pursuant to legislative history of the Bankruptcy Code, notes are not 

considered to be executory contracts. (See H.R. Rep. No. 95-595, 95th 

Cong., 1st Sess. 347 (1977).) 



[15] In 1998, we reported that this note had a balance of about $3.8 

billion that represented principal only. The bulk of the difference 

between this amount and the $14.2 billion that would have been due had 

Amtrak been liquidated on December 31, 2001, is the accrual of interest 

from the date of the note in 1976, which would be due in a liquidation 

under the new acceleration provision. 



[16] This amount is about four times greater than the $1.1 billion we 

reported in 1998. The value of this note increased primarily because of 

interest accrued under the acceleration provision. The amount reported 

in 1998 did not include accrued interest. The value of this note in 

1998, including both principal and accrued interest, would have been 

$3.7 billion.



[17] Excluded from this security interest was equipment previously 

subject to the original note (or previously released from the lien 

associated with that note) and certain property held by the Chicago 

Union Station Company--an Amtrak subsidiary. 



[18] The latter primarily includes Amtrak’s mortgage of a portion of 

Pennsylvania Station (about $296 million outstanding on December 31, 

2001) and high-speed rail maintenance facilities ($178 million).



[19] Information as of December 31, 2001, was not available.



[20] Certain unsecured claims are granted priority status under the 

Bankruptcy Code and would be provided for before other unsecured 

claims. Priority unsecured claims would include administrative claims 

for postpetition expenses of the estate, wages and contributions to 

employee benefit plans, claims for personal injury or wrongful death, 

labor protection claims, and claims against the Railroad Unemployment 

Insurance Account. (See app. I.) 



[21] Amtrak estimates that labor protection costs for management would 

have been about $583 million had it been liquidated on December 31, 

2001, and had management employees been entitled to labor protection 

payments. On December 31, 2001, Amtrak had approximately 2,700 

individuals defined as management employees (called “nonagreement 

employees” by Amtrak). 



[22] The federal government received preferred stock in the value of 

the federal operating payments and most federal capital payments that 

it made to Amtrak between October 1981 and December 2, 1997. The 

federal government is the only Amtrak preferred stock holder. When 

Amtrak was formed, some railroads that provided or contributed 

passenger equipment, crews, or other services received Amtrak common 

stock or a federal income tax credit. This common stock is now held by 

three railroads and one holding company. The Amtrak Reform and 

Accountability Act of 1997 requires that Amtrak redeem all of its 

common stock at fair market value by October 1, 2002.



[23] We note that Amtrak has not amended the sections of its articles 

of incorporation that correspond to the statutory change. 



[24] In addition to eliminating the statutory requirement that Amtrak’s 

articles of incorporation provide for a minimum annual cumulative 

preferred stock dividend of 6 percent, the Amtrak Reform and 

Accountability Act of 1997 expressly eliminated the liquidation 

preference attached to the preferred stock--that is, the preference for 

preferred stock holders to receive payments before common stock 

holders--as well as the requirement to issue such stock in the future. 



[25] See our letters to Representatives Kasich and Shuster on federal 

liability for Amtrak’s obligations (B-277814, Oct. 20, 1997). There 

have been no changes in statutory or decisional law that would cause us 

to modify the conclusions we reached in our 1997 opinion.



[26] A 100 percent decline in Amtrak employment is consistent with a 

liquidation of the company. In addition, the assumption that terminated 

workers would not have been reemployed in the industry is consistent 

with the fact that industry employment has been falling over the past 

decade and the Railroad Retirement Board projects that employment will 

continue to decline.



[27] At our request, the Board estimated the minimum tax increase 

required to keep the fund from running a deficit. If Amtrak underwent 

liquidation, the Board could consider other options, such as reducing 

benefits or establishing tax rates that provide more long-term 

financial health for the retirement fund. 



[28] In nominal dollars, the negative balance would be $1.2 billion. 

For this analysis, the Board assumed that all Amtrak employees were 

terminated on December 31, 2001, and that employees eligible for 

retirement at the time of liquidation (about 1,000 employees) actually 

retired. The analysis did not assume that Amtrak workers exercised 

flowback rights (reemployment rights for Amtrak workers who joined the 

corporation from other railroads when it was created). According to 

Amtrak, about 1,275 employees have flowback rights to other railroads. 

The Board’s analysis considered the effects of the Railroad Retirement 

and Survivors’ Improvement Act of 2001, enacted in December 2001. This 

act, among other things, increased certain benefits for widows, 

widowers, and employees/spouses; repealed maximum retirement benefits; 

and changed employer tax rates.



The financial health of some of the participants in the retirement 

system--such as small freight railroads and commuter rail systems--

might be adversely affected to the extent that they could not increase 

revenue, cut costs, or otherwise absorb increases in payroll taxes that 

might be necessary to offset the loss of Amtrak contributions or 

increases in payments to Amtrak employees resulting from liquidation.



[29] The rate would have continued to be at least 6 percent higher than 

otherwise planned through 2042.



[30] In nominal dollars, $6.1 billion.



[31] In nominal dollars, tax revenues would have decreased by about 

$200 million in 2002, and the shortfall would have been about $489 

million in 2024. 



[32] In nominal dollars, benefits would have increased by $6 million in 

2002 and 2003, and benefit reductions would have been about $252 

million in 2024.



[33] The railroad unemployment system is financed exclusively by 

contributions from railroad employers, on the basis of the taxable 

earnings of their employees. For 2002, the tax rates range from 3.15 

percent (including a 2.5 percent surcharge) to a maximum of 12 percent 

on employees’ monthly earnings of up to $1,100. If the balance of the 

system’s account is less than zero, the maximum rate is 12.5 percent. 

In performing its analysis, the Board assumed that all terminated 

Amtrak employees had exhausted their unemployment benefits and had not 

received labor protection benefits. According to the Federal Railroad 

Administration, any unemployment insurance benefits received by Amtrak 

employees as the result of liquidation would have reduced their 

potential labor protection claims by the same amount.



[34] By law, Amtrak is required to submit its audited financial 

statements to Congress by February 15. We note that it is highly 

unusual that Amtrak had not issued audited financial statements nearly 

7 months after they were due. This was of significant concern to us but 

was beyond the scope of this report.



[35] An unsecured claim is one not supported or backed by collateral.



[36] With limited exceptions, Amtrak would continue to be subject to 

otherwise applicable federal, state, and local regulations. For 

example, the Federal Railroad Administration’s safety regulations would 

continue to apply to Amtrak. However, any order of a federal, state, or 

local regulatory body resulting in a financial obligation or 

expenditure from the estate would have to be approved by the court.



[37] In most chapter 11 cases, the filing of a bankruptcy petition 

prevents creditors from enforcing claims, foreclosing or repossessing 

collateral, or otherwise exercising control over the debtor’s property. 

However, in railroad cases, the Bankruptcy Code provides an exception 

for rolling stock equipment or accessories used on rolling stock 

equipment.



[38] An executory contract is one in which substantially unperformed 

obligations remain on both sides, such that one party’s failure to 

perform would be a breach of contract excusing performance by the other 

party.



[39] The trustee would not be required to cure a default attributed 

solely to a contract or lease provision that provides that the 

commencement of a bankruptcy case constitutes a default.



[40] In general, the trustee could assume or reject such contracts or 

leases at any time prior to the confirmation of a reorganization plan, 

unless the court ordered otherwise. However, the trustee would have to 

assume or reject real estate leases within 60 days of the bankruptcy 

petition. If the trustee failed to do so, the leases would be 

considered rejected, and the leased property would have to be 

immediately surrendered to the lessor.



[41] This provision of chapter 11 of the Bankruptcy Code applies only 

to railroads.



[42] Classes of claims would include secured claims, administrative 

claims, priority unsecured claims, and general unsecured claims. 

Substantially similar claims and interests could be classified together 

and treated similarly; typically, each secured claim is classified 

separately.



[43] A class of claims or interests would be considered “impaired” 

under a plan if the plan altered the legal, equitable, or contractual 

rights of the holders of the claims or interests. Among other things, a 

plan could provide for payment of a claim in full over time, or partial 

payment, in satisfaction of a claim. 



[44] The Bankruptcy Code provides priority status for (1) employees’ 

claims for wages (including labor protection) accrued within 90 days of 

the bankruptcy petition, up to $4,000 per claimant, and (2) employees’ 

claims for contributions to employee benefit plans, such as pension, 

health insurance, and life insurance plans, for services rendered 

within 180 days of the bankruptcy petition, up to a statutory maximum.



[45] The claims must be for materials or services used in the ordinary 

course of business; the claimant must have expected payment out of 

Amtrak’s current operating receipts; and a current debt fund must 

exist.



[46] A class of claims accepts a reorganization plan if more than half 

of the creditors in that class and those holding two-thirds of the 

amount of the claims in the class vote in its favor. A class of 

interests accepts a plan if those holding two-thirds of the amount of 

the interests in the class vote in its favor. Classes of claims and 

interests that are not impaired under the plan, and the members of such 

classes, are presumed to have accepted it.



[47] An oversecured creditor has a security interest whose value 

exceeds the amount of the underlying debt. Such a creditor would 

generally be entitled to the full amount of its claim, including 

interest, not to exceed the value of its interest. An undersecured 

creditor has an interest that is less than the amount of the underlying 

debt. Such a creditor would have a secured claim to the extent of the 

value of its interest and an unsecured claim for the remainder.



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