Intercity Passenger Rail: Issues Associated With a Possible Amtrak
Liquidation (Letter Report, 03/02/98, GAO/RCED-98-60).

Pursuant to a legislative requirement, GAO reviewed the financial and
other issues associated with a possible Amtrak bankruptcy and
liquidation, focusing on: (1) uncertainties in estimating the potential
costs associated with a liquidation; (2) possible financial impacts on
creditors, including the federal government; (3) possible financial
impacts on participants in the railroad retirement and unemployment
systems; and (4) possible impacts on intercity, commuter, and other rail
service.

GAO noted that: (1) Amtrak has estimated that the net cost to creditors
and others of a possible liquidation could be as much as $10 billion to
$14 billion over a 6-year period; (2) however, the costs associated with
a possible liquidation are difficult to predict because they will depend
on a few uncertainties; (3) Amtrak's financial obligations, if any, to
employees who lose their jobs as a result of a liquidation would depend
on the results of negotiations between Amtrak and its unions; (4) in
addition, most of the costs identified by Amtrak are not liquidation
costs; (5) existing commuter rail agencies and others that operate on
Amtrak tracks might assume some of these costs; (6) Amtrak's creditors
might face losses in the event of a liquidation; (7) the extent to which
these creditors' claims could be paid would depend in large part on the
market value of assets available to satisfy such claims; (8) with the
exception of its interest in the Northeast Corridor and certain other
real property, the federal government's financial interests in the event
of liquidation would generally be subordinate to other creditors'; (9)
for participants in the railroad retirement and unemployment systems, an
Amtrak liquidation would result in higher payroll taxes on employers and
employees of other railroads or a reduction in benefits to compensate
for the loss of Amtrak's annual contributions; (10) according to the
Railroad Retirement Board, which administers these systems, if no
actions were taken to increase payroll taxes or reduce benefit levels,
the balance of the railroad retirement account would start to decline by
2000 and would be depleted by 2026.; (11) the railroad unemployment
account, on the other hand, would experience more immediate financial
problems requiring the imposition of surcharges on participants as well
as borrowing from the retirement account; (12) according to the Railroad
Retirement Board, these measures would be required for 2 to 3 years to
maintain financial solvency in the unemployment account; (13) the
liquidation of Amtrak could also disrupt intercity and other passenger
rail service; (14) a number of factors could affect the continuation of
rail service, including access to the tracks and stations that are owned
by Amtrak and others, and the ability of states and commuter railroads
to absorb the cost of continuing service; and (15) some freight
railroads use the Northeast Corridor and may also face the potential
loss of millions of dollars of business to the extent that they are
unable to retain access to the Corridor.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-60
     TITLE:  Intercity Passenger Rail: Issues Associated With a Possible 
             Amtrak Liquidation
      DATE:  03/02/98
   SUBJECT:  Railroad transportation operations
             Losses
             Federal aid to railroads
             Financial management
             Strategic planning
             Railroad industry
             Bankruptcy
             Railroad employees
             Retirement benefits
             Unemployment compensation programs
IDENTIFIER:  Amtrak Northeast Corridor
             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1998

INTERCITY PASSENGER RAIL - ISSUES
ASSOCIATED WITH A POSSIBLE AMTRAK
LIQUIDATION

GAO/RCED-98-60

Issues Associated With a Possible Amtrak Liquidation

(348042)


Abbreviations
=============================================================== ABBREV

  GAO - General Accounting Office
  FRA - Federal Railroad Administration

Letter
=============================================================== LETTER


B-277703

March 2, 1998

The Honorable John McCain
Chairman
The Honorable Ernest F.  Hollings
Ranking Minority Member
Committee on Commerce,
 Science, and Transportation
United States Senate

The Honorable Bud Shuster
Chairman
The Honorable James L.  Oberstar
Ranking Minority Member
Committee on Transportation and
 Infrastructure
House of Representatives

The National Railroad Passenger Corporation (Amtrak) carries over 20
million passengers a year through the trains that it operates.  It
also provides services, such as dispatching, to state and local
commuter rail operators.  Since 1971, Amtrak has received over $20
billion in federal assistance to cover its operating losses and to
make capital improvements.  Yet Amtrak's financial condition has
continued to deteriorate, raising the possibility of both bankruptcy
and liquidation. 

In July 1997, the Chairman of the Senate Committee on Commerce,
Science, and Transportation asked us to report on the financial and
other issues associated with a possible Amtrak bankruptcy. 
Subsequently, section 413 of the Amtrak Reform and Accountability Act
of 1997 required us to report on these issues.  If Amtrak filed for
bankruptcy, the trustee appointed to handle the bankruptcy could
attempt to reorganize the Corporation rather than immediately
liquidate it.  However, owing to the difficulty in predicting how
Amtrak might be reorganized, you asked us to focus on the issues
associated with a possible liquidation of Amtrak.  Specifically, this
report discusses (1) uncertainties in estimating the potential costs
associated with a liquidation; (2) possible financial impacts on
creditors, including the federal government; (3) possible financial
impacts on participants in the railroad retirement and unemployment
systems; and (4) possible impacts on intercity, commuter, and other
rail service. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Amtrak has estimated that the net cost to creditors and others of a
possible liquidation could be as much as $10 billion to $14 billion
over a 6-year period.\1 However, the costs associated with a possible
liquidation are difficult to predict because they will depend on such
uncertainties as Amtrak's debt and financial obligations at the time
of liquidation, the market value of its assets, and the proceeds from
the sale of its assets.  For example, the Amtrak Reform and
Accountability Act of 1997 eliminates, as of May 31, 1998, labor
protection arrangements for Amtrak workers who lose their jobs as a
result of a discontinuation of intercity passenger rail service and
requires that Amtrak and its unions negotiate any new arrangements. 
Amtrak's financial obligations, if any, to employees who lose their
jobs as a result of a liquidation would depend on the results of
these negotiations.  In addition, most of the costs identified by
Amtrak are not liquidation costs.  For example, after a liquidation,
the costs that Amtrak currently pays to operate, maintain, and
rehabilitate infrastructure (such as tracks and stations) could be
borne by other parties as a result of decisions to provide passenger
or other rail service,\2 especially on the Northeast Corridor.\3 In
this regard, existing commuter rail agencies and others that operate
on Amtrak tracks might assume some of these costs. 

Amtrak's creditors might face losses in the event of a liquidation. 
For example, as of September 30, 1997, data from Amtrak showed that
its debt to all institutional creditors (such as lenders and vendors)
could be about $2.2 billion.  The extent to which these creditors'
claims could be paid would depend in large part on the market value
of assets available to satisfy such claims.  As of September 1997,
the value of one of Amtrak's largest assets, real property on the
Northeast Corridor, was about $4.3 billion.  However, the market
value of this property is untested and may be affected by the
easements commuter and freight railroads possess to provide service
on the Northeast Corridor.  With the exception of its interest in the
Northeast Corridor and certain other real property, the federal
government's financial interests in the event of liquidation would
generally be subordinate to other creditors'. 

For participants in the railroad retirement and unemployment systems,
an Amtrak liquidation would result in higher payroll taxes on
employers and employees of other railroads or a reduction in benefits
to compensate for the loss of Amtrak's annual contributions. 
According to the Railroad Retirement Board, which administers these
systems, if no actions were taken to increase payroll taxes or reduce
benefit levels, the balance of the railroad retirement account would
start to decline by 2000 and would be depleted by 2026.  The railroad
unemployment account, on the other hand, would experience more
immediate financial problems requiring the imposition of surcharges
on participants as well as borrowing from the retirement account. 
According to the Railroad Retirement Board, these measures would be
required for 2 to 3 years to maintain financial solvency in the
unemployment account. 

The liquidation of Amtrak could also disrupt intercity and other
passenger rail service.  A number of factors could affect the
continuation of rail service, including access to the tracks and
stations that are owned by Amtrak and others, and the ability of
states and commuter railroads to absorb the cost of continuing
service.  A liquidation could also affect commuter rail operators
that contract with Amtrak to provide service, requiring them to find
new operators--a potentially time-consuming and expensive
proposition.  Finally, some freight railroads use the Northeast
Corridor and may also face the potential loss of millions of dollars
of business to the extent that they are unable to retain access to
the Corridor. 


--------------------
\1 This is net of about $850 million from the sale of assets.  This
estimate is from Amtrak's analysis in a September 1997 draft entitled
"Budget Implications of a Zero Federal Grant:  Why Zero Isn't Zero."

\2 We also recognize that potential effects could be associated with
changes in highway and aviation congestion, air quality, and/or
energy consumption as the result of a diversion of Amtrak passengers
to other modes of transportation (such as automobiles and airplanes). 
These topics are outside the scope of this report. 

\3 The Northeast Corridor is a 460-mile segment of railroad tracks
and facilities between Washington, D.C., and Boston, Massachusetts. 
Most of this is owned by Amtrak.  However, two sections, one between
New Rochelle, New York, and New Haven, Connecticut (56 miles), and
one within the state of Massachusetts (38 miles), are owned by
others. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Amtrak was created by the Rail Passenger Service Act of 1970 to
operate and revitalize intercity passenger rail service.  Prior to
Amtrak's creation, intercity passenger rail service was provided by
private railroads, which had lost money, especially after World War
II.  The act, as amended, gave Amtrak a number of goals, including
providing modern, efficient intercity passenger rail service; giving
Americans an alternative to automobiles and airplanes to meet their
transportation needs; and minimizing federal subsidies.  Through
fiscal year 1998, the federal government has provided Amtrak with
over $20 billion in operating and capital subsidies. 

Amtrak provides intercity passenger rail service to 44 states and the
District of Columbia (see fig.  1).\4 In fiscal year 1997, Amtrak
served about 20 million intercity rail passengers on 40 routes\5 and
had passenger revenues of about $964 million.  Amtrak also operates
intercity passenger rail service that is financially supported by
others--such as a state or a group of states.\6 As illustrated in
figure 1, in fiscal year 1997, 11 states paid Amtrak a total of about
$70 million for such service to transport about 4.6 million
passengers.\7 In addition, Amtrak operates commuter rail service
under contract.  During fiscal year 1997, Amtrak was the contract
operator of seven commuter rail systems serving about 49 million
passengers.\8 According to Amtrak, an average of 179,000 passenger
trips are made each weekday on the 708 commuter trains it operates;
and in fiscal year 1997, Amtrak received about $242 million in
revenue to operate commuter rail service. 

   Figure 1:  Amtrak's Routes,
   States Providing Financial
   Support for Intercity Passenger
   Rail Service, and Amtrak's
   Contract Commuter Rail Service,
   as of November 1997

   (See figure in printed
   edition.)

   Source:  Amtrak.

   (See figure in printed
   edition.)

Amtrak also provides train-dispatching, maintenance-of-way, and other
services for commuter and freight railroads that use its tracks and
facilities.  According to Amtrak, four commuter rail systems (with
more than 429,000 passengers per day)--mostly on the Northeast
Corridor--pay to use its rails or facilities.\9 In fiscal year 1997,
four freight railroads operated on the Northeast Corridor:  the
Springfield Terminal Railway Company, the Providence and Worcester
Railroad, the Connecticut Southern Railroad, and Conrail.  As
measured in train-miles--the movement of a train the distance of 1
mile--Conrail is by far the largest freight user of the Corridor. 
Overall, the freight railroads own about 97 percent of the tracks
over which Amtrak operates (about 22,300 miles), and Amtrak directly
owns only about 650 miles of tracks.\10

Despite attempts to address growing losses, Amtrak's financial
condition raises the specter of possible bankruptcy.  At the end of
fiscal year 1996, the gap between Amtrak's operating deficits\11 and
federal operating subsidies had begun to grow; Amtrak was continuing
to experience working capital deficits (the difference between
current assets and current liabilities); and debt levels had
increased significantly.\12 In fiscal year 1997, Amtrak's net loss
was $762 million, and its overall loss was $70 million.\13 Although
these losses were less than those for fiscal year 1996, Amtrak's
overall loss was still about $26 million more than planned.  In
addition, as of September 30, 1997, Amtrak had borrowed $75 million
from banks to meet payroll and other operating expenses.  Financial
prospects for fiscal year 1998 may also be dim.  Amtrak's strategic
business plan projects a cash flow deficit of about $100 million by
September 1998, even assuming the successful implementation of all of
the strategic business plan's actions.  The Congress recently
provided about $2.2 billion in the Taxpayer Relief Act of 1997 that
may be used to acquire capital improvements.\14 However, because of
high operating costs, Amtrak continues to face challenges in
improving its financial health. 

Should Amtrak's financial condition force it to file for bankruptcy,
it must do so under chapter 11 of the Bankruptcy Code.\15 This
chapter contains provisions regarding the management and
reorganization of debtors, including railroads, and specifies the
circumstances under which a railroad may be liquidated.\16 Among
other things, chapter 11 seeks to protect the public interest in
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.  A railroad must
be liquidated if a plan for reorganizing it has not been confirmed
within 5 years after filing for bankruptcy.  The trustee who is
appointed plays a key role and, subject to the court's review,
directs the railroad and its affairs during bankruptcy.\17 In a
liquidation, the trustee administers the distribution of the
railroad's assets (called the estate) in accordance with the
Bankruptcy Code.  Appendix I contains a more detailed description of
the bankruptcy process as it might apply to Amtrak. 


--------------------
\4 The states of Alaska, Hawaii, Maine, Oklahoma, South Dakota, and
Wyoming do not currently receive Amtrak service. 

\5 During fiscal year 1997, service on three routes (Gulf Coast
Limited, Desert Wind, and Pioneer) was discontinued. 

\6 Formerly known as section 403(b) service under the Rail Passenger
Service Act. 

\7 In June 1997, the Texas Department of Transportation also loaned
Amtrak $5.6 million to continue train service on the Texas Eagle
through September 30, 1997.  This loan is expected to be repaid in
July 1999. 

\8 These systems are the Maryland Rail Commuter Service
(Maryland-Washington, D.C.); the Massachusetts Bay Transportation
Authority (Massachusetts-Rhode Island); Metrolink (Los Angeles,
California); the San Diego Coaster (San Diego, California); Caltrain
(San Jose, California); the Virginia Railway Express
(Virginia-Washington, D.C.); and Shoreline East (Connecticut).



\9 These systems include the Long Island Rail Road; New Jersey
Transit; Metra (Chicago); and the Southeastern Pennsylvania
Transportation Authority. 

\10 By statute, Amtrak is guaranteed the right to use freight
railroads' tracks to provide service.  Operating agreements
negotiated between Amtrak and the freight railroads govern the terms
and conditions of this use as well as the fees Amtrak pays.  Amtrak
is expected to pay the incremental costs that freight railroads incur
for passenger rail service. 

\11 Operating deficits are defined as total revenues minus total
expenses less noncash items (such as depreciation). 

\12 Intercity Passenger Rail:  Amtrak's Financial Crisis Threatens
Continued Viability (GAO/T-RCED-97-147, Apr.  23, 1997).  For
additional information on Amtrak's financial and operating issues,
see Amtrak's Strategic Plan:  Progress to Date (GAO/RCED-96-187, July
31, 1996) and Intercity Passenger Rail:  Financial and Operating
Conditions Threaten Amtrak's Long-Term Viability (GAO/RCED-95-71,
Feb.  6, 1995). 

\13 Net loss is defined as total revenues minus total expenses. 
Overall loss is the same as net loss, except the federal operating
support received and noncash items (such as depreciation) are
excluded.  Amtrak refers to overall loss as its "budget result."

\14 Under the act, Amtrak may use the funds to acquire equipment,
rolling stock (cars and locomotives), and other capital improvements;
upgrade maintenance facilities; maintain existing equipment in
intercity passenger rail service; and pay interest and principal on
obligations incurred for such acquisitions, upgrades, and
maintenance. 

\15 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.  Amtrak believes it is unlikely that the
Corporation would be placed in involuntary bankruptcy by creditors to
whom it owes small amounts. 

\16 Chapter 7 of the Bankruptcy Code generally applies to corporate
liquidations.  However, liquidations of railroads are governed by
chapter 11 of the Bankruptcy Code. 

\17 A trustee is required in a railroad bankruptcy and is selected by
the U.S.  Trustee (an official in the U.S.  Department of Justice)
for the region in which the case is pending from a list of five names
submitted by the Secretary of Transportation. 


   COSTS ASSOCIATED WITH A
   LIQUIDATION ARE DIFFICULT TO
   PREDICT
------------------------------------------------------------ Letter :3

In September 1997, Amtrak estimated the net cost to creditors and
others of a possible liquidation to be between about $10 billion and
$14 billion over a 6-year period.  However, the financial impacts
associated with a possible liquidation are difficult to estimate
because of the uncertainties connected with the financial condition
of the Corporation at the time of liquidation.  These uncertainties
are associated with different types of costs.  These costs include,
for example, (1) obligations that are due to creditors, such as
lenders, vendors, and Amtrak employees; (2) costs that Amtrak
currently pays, or might have to pay in the future, that could be
assumed by other parties; and (3) costs to administer and close out
the estate.  Virtually all the costs associated with a liquidation
would likely be borne either directly by those who do business with
Amtrak or by those who benefit from Amtrak's existence.  In this
regard, most of these costs would represent Amtrak's existing
financial obligations and the costs of providing future levels of
rail service, which would be borne by other parties. 

One of the uncertainties associated with any estimate of the
financial impacts involved in a liquidation is the obligations to
creditors.  These obligations can vary over time.  For example,
Amtrak's debt levels and capital lease obligations have increased
significantly in recent years--from $492 million in fiscal year 1993
to about $1.3 billion in fiscal year 1997.  This total does not
include about $820 million that is expected to be incurred in fiscal
year 1998 and beyond to finance high-speed trainsets and locomotives
and related maintenance facilities for the Northeast Corridor. 
Future obligations to creditors may be affected by a variety of
factors, such as the Taxpayer Relief Act of 1997.  This act provides
Amtrak with a total of about $2.2 billion in federal funds in fiscal
years 1998 and 1999 that may be used to acquire capital improvements
and repay principal and interest on certain debt.  In addition, a
default on Amtrak's obligations to creditors primarily represents a
transfer to its creditors and/or their insurers to the extent that
assets are not sufficient to satisfy Amtrak's debts, rather than
generating an additional cost resulting from liquidation.  This is
because the responsibility to repay financial obligations existed
before any liquidation occurred and did not arise solely because of
the liquidation. 

Also uncertain is Amtrak's future labor protection obligations to
those employees who would lose their jobs as the result of a
discontinuance of service.  Amtrak has estimated that, if it were
liquidated, its labor protection obligations to its employees could
amount to about $6 billion over 6 years.  Since this estimate was
made, the Congress passed the Amtrak Reform and Accountability Act of
1997.  This act eliminates current labor protection arrangements on
May 31, 1998, and requires Amtrak and its unions to negotiate new
arrangements for the payment of salaries, wages, and benefits to
employees who would be affected if service were discontinued. 
Amtrak's obligations, if any, to employees who lose their jobs as a
result of a liquidation would depend on the results of these
negotiations. 

Finally, after a liquidation, costs to operate, maintain, and
rehabilitate infrastructure, such as tracks and stations, that Amtrak
currently pays could be borne by other parties as a result of
decisions to provide passenger or other rail service.  For example,
existing commuter rail agencies might assume some of these costs. 
How much of these costs might actually be assumed is uncertain
because, in part, it would depend on such factors as the extent to
which the commuter authorities needed the infrastructure, the price
the new owner might charge for use of the facilities, and the level
at which the infrastructure would be maintained. 

Amtrak believes that the Northeast Corridor's infrastructure costs
would not decrease much if intercity passenger service were
eliminated.  However, several commuter rail agencies disagree,
telling us that, without Amtrak, they would not need as much
infrastructure as currently exists and would pare it back to reduce
costs.  Nevertheless, costs might increase if the new owner of the
infrastructure charged more for its use than Amtrak currently
charges.  The amount of infrastructure costs that might be assumed is
also uncertain because it would depend on future capital investments. 
As we reported in May 1997, the Federal Railroad Administration (FRA)
and Amtrak estimated that about $2 billion in capital funds would be
needed over a 3- to 5-year period to upgrade tracks and other
infrastructure on the southern end of the Northeast Corridor and
preserve Amtrak's ability to operate at current service levels.\18
Some amount of the $2.2 billion provided by the Taxpayer Relief Act
may be used to address these needs.  As discussed for default on
obligations to creditors, these infrastructure costs might be assumed
by others as a result of liquidation but would not arise solely
because of a liquidation. 


--------------------
\18 Transportation Financing:  Challenges in Meeting Long-Term
Funding Needs for FAA, Amtrak, and the Nation's Highways
(GAO/T-RCED-97-151, May 7, 1997). 


   CREDITORS COULD BEAR A
   FINANCIAL BURDEN IN THE EVENT
   OF A LIQUIDATION
------------------------------------------------------------ Letter :4

In a liquidation, Amtrak's institutional creditors could sustain
losses.  As of September 1997, data from Amtrak showed that its
combined secured and unsecured debt liability could be about $2.2
billion.\19 The extent to which this liability could be met would
depend in large part on the market value of Amtrak's available assets
and liquidation proceeds.  With the exception of its interests in the
Northeast Corridor and certain other real property, the federal
government's financial interests in the event of a liquidation would
generally be subordinate to those of other creditors. 


--------------------
\19 Secured claims are supported or backed by collateral; unsecured
claims are not. 


      SECURED AND UNSECURED
      CREDITORS COULD FACE LOSSES
---------------------------------------------------------- Letter :4.1

As of September 1997, secured creditors that have financed Amtrak's
equipment purchases would have had about $1.1 billion in claims if
the railroad defaulted on these purchases, according to Amtrak's
data.  Generally, these secured creditors would be entitled to
recover the equipment, or its value, used to secure Amtrak's debt. 
However, to the extent that secured creditors' claims exceeded the
value of the equipment, these creditors would be considered unsecured
and payments to them would depend on the proceeds available to
satisfy unsecured claims following the sale of Amtrak's assets. 

It is difficult to predict the market conditions that Amtrak's
trustee or secured creditors would face in attempting to sell or
lease equipment in a liquidation.  For example, Amtrak's locomotives
may be readily usable by other railroads, and selling them might
generate cash sufficient to allow secured creditors to avoid losing
money on their loans.  (Locomotives represent about 41 percent of the
outstanding loan balance.) In contrast, the sale or lease of
passenger cars might generate little cash because, according to two
rail industry officials we spoke with, these cars might need to be
reconfigured to accommodate the needs of a purchasing railroad,
either in the United States or abroad.  Table 1 shows the outstanding
balances of loans secured by rolling stock and the percent of the
total loan balance that each type of equipment represents. 



                                Table 1
                
                Outstanding Balances of Loans Secured by
                  Locomotives and Railroad Cars, as of
                           September 30, 1997

                         (Dollars in millions)

Equipment type                        Loan balance    Percent of total
------------------------------  ------------------  ------------------
Passenger cars                              $651.6                  57
Mail and express freight cars                 25.0                   2
Locomotives                                  463.6                  41
======================================================================
Total                                     $1,140.2                 100
----------------------------------------------------------------------
Note:  Amtrak's secured debt also included a $5.6 million loan for
financing continued service on a route that was scheduled to be
eliminated in 1996.  Unlike loans for new equipment purchases, which
are generally secured by the financed equipment, this loan is secured
by 47 of Amtrak's older passenger cars.  This amount is not included
in the table. 

Source:  Amtrak. 

In a liquidation, unsecured creditors' positions would be more
uncertain than secured creditors'.  As of September 30, 1997,
Amtrak's data showed that unsecured liabilities totaled about $1
billion.  Unsecured creditors depend entirely on the proceeds from
the sale of Amtrak's available assets for payment--to the extent that
these proceeds exceed the amounts required to satisfy secured
creditors.\20 As of September 30, 1997, all of Amtrak's rolling stock
was encumbered by liens and would have been unavailable to satisfy
unsecured creditors' claims.  However, unsecured creditors could have
received payments from the sale of Amtrak's real property, such as
property on the Northeast Corridor.  As of September 30, 1997, the
value of Amtrak's Northeast Corridor property was $4.3 billion.\21
Whether the actual sale proceeds would be more or less than this
amount is uncertain because the market value of Amtrak's real
property is untested.  For example, the Northeast Corridor has
commuter and freight rail easements that may affect its market value. 
In addition, according to FRA, the market value might be affected by
the extent to which the property could be used for telecommunications
and other utilities.  Table 2 shows the categories of unsecured
creditors and the amounts they were owed as of September 30, 1997. 



                                Table 2
                
                   Amounts Owed to Amtrak's Unsecured
                  Creditors, as of September 30, 1997

                         (Dollars in millions)

                                                                Amount
Category of creditor           Description                        owed
-----------------------------  -----------------------------  --------
Commuter rail systems,         Refunds of advances and             $15
 freight railroads, and other   overpayments for such
 customers                      services as maintenance-of-
                                way work performed by Amtrak
Passengers                     Refunds of cash paid for             48
                                reservations in advance of
                                actual travel
Retired employees and          Postretirement medical               50
 employees eligible to retire   benefits
Banks, insurance companies,    Repayment of capital loans           65
 and others                     for new and renovated
                                facilities
Issuers of letters of credit   Bonding requirements and/or          72
                                additional collateral for
                                various financings
Landlords                      Rent due for station and            142
                                office space under
                                noncancellable long-term
                                leases
Banks                          Repayment of short-term cash       0 to
                                loans for operating expenses     150\a
Injured passengers,            Payment of claims filed for       209\b
 employees, and others          personal injuries and
                                wrongful deaths resulting
                                from Amtrak's operations
Vendors, employees, and        Accrued expenses for such           279
 others                         items as materials and
                                services and unpaid wages,
                                vacation pay, and sick leave
======================================================================
Total                                                         $1,030\a
----------------------------------------------------------------------
\a Amtrak currently has short-term lines of credit of $150 million. 
In the past, Amtrak has borrowed from these credit lines in order to
make ends meet.  Since it is possible that, in the event of a
liquidation, Amtrak's short-term lenders could be owed as much as
$150 million, we have included this amount in the total. 

\b Estimated. 

Source:  Amtrak. 

Unsecured creditors may have other sources of payment.  These include
such assets as receivables due to Amtrak and the sale of Amtrak's
materials and supplies inventory.  According to Amtrak's data, as of
September 30, 1997, these other assets totaled about $173 million. 
Receivables include, for example, amounts due from travel agents and
credit card companies that participate in the sale of Amtrak tickets. 
Materials and supplies consist primarily of items for the maintenance
and improvement of property and equipment, such as spare parts, as
well as fuel.  As of September 30, 1997, Amtrak's data showed that up
to about $82 million, or 100 percent of its receivables, might be
recovered in cash.  In contrast, the data showed that only about $30
million of the approximately $91 million on its balance sheet for
materials and supplies could be recovered, in part due to the unique
nature of Amtrak's spare parts inventory. 

In addition to the unsecured obligations outlined in table 2,
employees who would lose their jobs if Amtrak stopped operating
trains would be considered unsecured creditors and could raise claims
against Amtrak's estate.  The extent of these claims, if any, is
uncertain.  Amtrak estimated the maximum 6-year labor protection
liability associated with payments to these employees to be about $6
billion.  This liability could change substantially, however, as a
result of the Amtrak Reform and Accountability Act of 1997, as
discussed earlier.  As a result, it is not currently possible to
quantify the claims, if any, that employees could raise. 

In our opinion, the United States would not be legally liable for
secured or unsecured creditors' claims in the event of an Amtrak
liquidation.  Therefore, any losses experienced by Amtrak's secured
and unsecured creditors would be borne in full by the creditors
themselves or their insurers.  Nevertheless, we recognize that
creditors could attempt to recover losses from the United States.\22


--------------------
\20 Certain unsecured claims are granted priority status under the
Bankruptcy Code and would be provided for before other unsecured
claims.  App.  I identifies several types of unsecured claims that
would have a priority should Amtrak file for bankruptcy. 

\21 This represents Amtrak's original cost plus capital improvements. 
Depreciation is not included. 

\22 See our letters to Representatives Kasich and Shuster on federal
liability for Amtrak's obligations (B-277814, Oct.  20, 1997). 


      FEDERAL GOVERNMENT UNLIKELY
      TO RECOVER ITS FINANCIAL
      INTERESTS
---------------------------------------------------------- Letter :4.2

The federal government is both a secured creditor and a preferred
stockholder in Amtrak; however, because of the nature of its
financial interests, the federal government is not likely to recover
these interests in the event of Amtrak's liquidation.  In exchange
for funds for the purchase of and improvements to property and
equipment, Amtrak has issued two promissory notes to the U.S. 
government.  The first note, representing about $1.1 billion in
noninterest-bearing debt, matures on November 1, 2082, with
successive 99-year renewal terms, and is secured by a lien on
Amtrak's rolling stock.  The note would be accelerated and become due
in the event of Amtrak's liquidation.  However, according to FRA
officials, to assist Amtrak in obtaining financing from the private
sector, the federal government subordinated its lien on the equipment
acquired by Amtrak after 1983 to the security interests of Amtrak's
equipment creditors.  Consequently, in a liquidation, these other
creditors would have first claim on this equipment or its value. 
Furthermore, while the federal government would be entitled to
Amtrak's pre-1983 equipment or its value, this equipment may be of
limited value because of its age. 

The second note, representing about $3.8 billion in
noninterest-bearing debt, matures on December 31, 2975, and is
secured by a mortgage on Amtrak's real property, primarily on the
Northeast Corridor and in the Midwest.  The mortgage on this property
has not been subordinated.  However, the note does not mature for
over 970 years, and no payments are due until then.  Furthermore, the
note could only be accelerated upon the enactment of a statute
requiring immediate payment.  According to FRA, the present value of
the mortgage--that is, the government's interest in the property--is
nominal.  In a liquidation, the trustee could pay off the mortgage
and sell the property or sell the property to a purchaser who would
assume the mortgage.  In either case, proceeds from the sale would be
available to satisfy creditors' claims.  It is not likely the federal
government would sustain a financial loss on such transactions
because it has no expectation of payment for over 970 years.  While
the federal government's financial interest might not be affected,
any interest the federal government might have in continuing
intercity passenger rail service could be jeopardized if a purchaser
did not use Amtrak's property for this purpose. 

The U.S.  government also holds all of Amtrak's preferred stock,
about $10.6 billion as of September 30, 1997.  While the Amtrak
Reform and Accountability Act of 1997 eliminated the liquidation
preference attached to such stock as well as the requirement to issue
such stock, this stock ownership nonetheless represents a substantial
interest in Amtrak.\23 However, the federal government's claim
associated with this stock would be secondary to the payment of the
claims of secured and unsecured creditors. 


--------------------
\23 The act also requires Amtrak to redeem all common
stock--currently held by four private companies--by October 2002. 


   LIQUIDATION COULD PLACE
   FINANCIAL BURDEN ON
   PARTICIPANTS IN THE RAILROAD
   RETIREMENT AND UNEMPLOYMENT
   SYSTEMS
------------------------------------------------------------ Letter :5

In contrast to the losses that creditors might suffer, participants
in the railroad retirement and unemployment systems would have
increased financial obligations in the event of Amtrak's
liquidation.\24 The financial health of some of these
participants--especially small freight railroads and commuter
passenger railroads--might be adversely affected to the degree that
they cannot increase revenues or cut costs to offset increased
payroll taxes. 

The primary source of income for the railroad retirement system is
payroll taxes levied on employers and employees.  Because the
retirement system is on a modified pay-as-you go basis, the financial
health of this system is closely related to the size of the railroad
workforce and the income to the railroad retirement account derived
from this workforce.  In 1996, Amtrak paid about $335 million in
payroll taxes into the railroad retirement account (about 8 percent
of the total receipts for the railroad retirement account in calendar
year 1996).  A loss of this contribution could have a significant
impact.  A February 1997 analysis by the Railroad Retirement Board
found that, if Amtrak had been liquidated in 1997 and no actions had
been taken to increase payroll taxes or reduce benefit levels, the
balance in the railroad retirement account would have begun to
decline in 2000 and that the account would have been depleted by
2026.  For this analysis, the Board assumed that all Amtrak employees
were terminated and all Amtrak employees who were eligible for
retirement at the time of a liquidation (about 1,300 employees)
actually retired.\25

Although the retirement account would not have been depleted until
2026, the Railroad Retirement Board would have had to take action
before that time to protect the retirement account's financial
health.  According to the Board, if Amtrak had been liquidated in
1997, this would have required, beginning in 1998, one of three
actions:  (1) a permanent "tier II" payroll tax increase on either
employers or employees of other railroads or both, (2) tier II
benefit reductions, or (3) a combination of the first and second
actions equivalent to 2.3 percent of tier II taxable payroll.  If the
adjustment had been made totally as a tax increase, it would have
resulted in a new combined employer and employee tax rate of 23.3
percent.\26 Because the Board does not have the authority to increase
retirement taxes, it would have to seek legislation to change the tax
rate. 

Similarly, participants in the railroad unemployment system would be
affected by a liquidation.  In contrast to the impacts on the
retirement account, the financial effects would be more immediate and
shorter-term.  The Railroad Retirement Board estimated that, if
Amtrak had been liquidated in 1997, separated Amtrak employees would
have received about $322 million in benefit payments that would not
have been paid for by Amtrak.  In order to pay these benefits, other
railroads would have been required to increase their payroll tax
contributions.  In particular, the average tax rate would have been
increased by a maximum of about 9 percentage points (a 400-percent
increase)--from 3 percent to 12 percent in 2000.\27 This estimate
assumed that terminated employees would have exhausted all their
unemployment benefits and that they would have received no labor
protection benefits.  The Board also assumed that the unemployment
account would have had to borrow $288 million from the retirement
account, as permitted by statute, over 2 years.  Because this
borrowing would have been short-term, the Board believes that it
would have had little or no overall effect on the retirement account. 
By taking these actions, the Board projected that the unemployment
account would have remained financially solvent and been out of debt
by 2001. 


--------------------
\24 The Railroad Retirement Board administers the railroad retirement
and unemployment systems.  The Board, an independent agency of the
federal government, was created in the 1930s to provide retirement
and unemployment benefits to railroad workers.  In 1996, these
systems covered about 257,000 active railroad workers, of which
Amtrak had about 9 percent (or about 23,000 employees). 

\25 The Railroad Retirement Board's analysis did not consider
employees with "flowback" rights (reemployment rights for Amtrak
workers who joined the Corporation from other railroads when it was
created).  The analysis assumed that Amtrak employees would not come
back to work in the rail industry.  The Board acknowledged that to
the extent that Amtrak employees returned and replaced freight
employees with lesser service, the impact on the retirement system
could be greater than the analysis showed.  Both Conrail and Amtrak
officials agreed that about 1,000 Amtrak employees could be eligible
to return to Conrail. 

\26 Railroad retirement payroll taxes are composed of tier I and tier
II tax rates and are used to pay tier I and tier II benefits.  The
tier I benefit is paid on the basis of an employee's combined
railroad and nonrailroad service and is generally the amount that
would be payable under the Social Security Act.  The tier II benefit
is paid on the basis of an employee's railroad service only.  The
Board estimated that no change in the tier I tax rate, equivalent to
the Social Security tax rate, would be needed in the event of
Amtrak's bankruptcy.  Both the tier I and tier II tax rates are
subject to maximums based on annual increases in national wage
levels. 

\27 The railroad unemployment system is financed exclusively by the
contributions of railroad employers, on the basis of the taxable
earnings of their employees.  In 1997, the basic tax rate on railroad
employers ranged from a minimum of 0.65 percent to a maximum of 12
percent on employees' earnings, up to $890 per month.  Depending on
the balance of the system's account, the Board may levy payroll tax
surcharges. 


   AN AMTRAK LIQUIDATION COULD
   AFFECT INTERCITY, COMMUTER, AND
   OTHER RAIL SERVICE
------------------------------------------------------------ Letter :6

Liquidating Amtrak could disrupt intercity and other passenger rail
service--service that affects over 20 million intercity passengers
and over 100 million commuter and other passengers on the Northeast
Corridor annually.  In particular, for both intercity and commuter
rail, issues associated with accessing tracks and stations--and the
cost of such access--would largely determine the extent of service,
if any, including service on the Northeast Corridor.  Commuter
railroads that contract for service from Amtrak and freight railroads
using the Corridor might also face hardships. 


      CONTINUATION OF INTERCITY
      PASSENGER RAIL SERVICE COULD
      BE LIMITED
---------------------------------------------------------- Letter :6.1

The current level of Amtrak's intercity passenger rail service in
certain states might not continue if Amtrak were liquidated,
according to department of transportation officials we talked to in
three states--Colorado, Florida, and Louisiana.  These states are not
on the Northeast Corridor and do not provide financial support for
intercity passenger rail service.  They had the largest volume of
intercity passenger ridership--about 650,000 intercity passengers in
fiscal year 1997--of states that do not provide financial support for
intercity passenger service and that are not on the Northeast
Corridor.\28

Although these officials were interested in continuing intercity
service, they doubted service would continue for a number of reasons: 
the potentially high cost of continuing service, possible
difficulties in negotiating access to tracks with freight railroads,
and the lack of an incentive to keep such service going if Amtrak's
national route network were ended.  Regarding the latter, officials
from all three states said their states depend, at least to some
degree, on Amtrak's national route network to bring in tourists and
others.  Although intercity rail service might face an uncertain
future in these states, these officials said they would continue to
pursue more localized efforts to initiate or continue passenger rail
service. 

States that financially support intercity passenger rail service, on
the other hand, might have a greater interest in continuing this
service.  Three states that we talked to--California, Illinois, and
Wisconsin--provide financial support for intercity passenger rail
service and indicated more interest in continuing such service. 
These states represented about 5.6 million intercity passengers in
fiscal year 1997.  One state--Illinois--had even begun efforts to
take over a portion of state-supported Amtrak service about 2 years
ago, when Amtrak requested more money for the service.  Although this
effort ended when Amtrak signed a fixed-price contract to continue
service, state officials indicated they would continue to be
interested in arranging for this service should Amtrak go out of
business.  As with the states not currently providing financial
support, factors cited as potentially hindering these states' ability
to maintain service included cost and uncertain access to freight
railroads' tracks.  A California official told us these issues would
be critical in his state for continuing intercity passenger rail
service.  There may be other hindrances as well.  For example, a
California official said his state might have difficulty arranging
insurance because state law prevents the state from indemnifying
third parties (such as freight railroads) in the event of
accidents.\29

Officials we spoke with in some states were concerned about access to
tracks because they felt such access might be lost if Amtrak were
liquidated.  Amtrak is guaranteed by law access to freight railroads'
tracks to provide intercity passenger rail service.  If Amtrak were
liquidated and access to these tracks were lost, states and others
might have to rely on other means to continue intercity passenger
rail service.  One means might be compacts between two or more states
to provide intercity passenger rail service, as allowed under the
Amtrak Reform and Accountability Act of 1997. 

Although the use of compacts may not guarantee either access to
tracks or a specified cost, it could be a means to maintaining
intercity passenger rail service.  However, successfully implementing
such compacts might be difficult.  Among the potential problems cited
by the states we talked to are reaching agreements on the allocation
of costs, establishing train schedules, and determining station
stops.  Illinois and Florida officials said they had direct
experience in trying to work with other states to establish a
long-distance intercity passenger rail route.  In both instances, the
route was not established because of too many disputes among the
participating states over cost and operational matters.  In addition,
these officials mentioned potential financial and/or operational
problems that could be created if one or more states decided not to
participate in a route.  An Illinois official said interstate
compacts might be feasible.  However, the route would have to be
relatively short--in the range of 3- to 4-hour trips, for example. 


--------------------
\28 Intercity passenger ridership may include some passengers who use
Amtrak's Thruway bus service. 

\29 A Colorado official also said that state law prohibits the state
from indemnifying third parties and that this might hinder the
state's ability to pursue intercity passenger rail service without
Amtrak. 


      ACCESS TO TRACKS AND
      STATIONS AND COST COULD ALSO
      INFLUENCE CONTINUATION OF
      COMMUTER RAIL SERVICE
---------------------------------------------------------- Letter :6.2

As with intercity service, the extent of commuter rail service
provided would depend in part on access to tracks and stations.  Such
access is a particularly critical issue for the Northeast
Corridor.\30 The Corridor serves over 100 million rail passengers per
year and is a critical part of the transportation infrastructure for
eight states and the District of Columbia.  Officials at two commuter
railroads operating on the Corridor--New Jersey Transit and the
Southeastern Pennsylvania Transportation Authority--told us they
would basically shut down if they were unable to use the Corridor to
provide service.  These railroads carried about 70 million passengers
in 1996.\31 A third commuter railroad--the Long Island Rail
Road--told us its operations would be "devastated" if it were denied
access to Amtrak's Pennsylvania Station in New York City.  According
to Long Island Rail Road officials, although the Long Island Rail
Road accounts for only about one-third of the track capacity at this
station, it accounts for about 70 percent of the
passengers--approximately 260,000 passenger trips per day.  These
officials were concerned about access even though they have easements
to operate along the Northeast Corridor.  Some commuter authorities
expressed concern that these easements might be extinguished in a
liquidation.\32

After a liquidation, infrastructure costs would be a factor in
maintaining commuter rail service.  Amtrak estimates that current and
future infrastructure costs of $5.4 billion might have to be absorbed
by states and commuter rail authorities over a 6-year period if it
were liquidated.  The ability of states and commuter authorities to
absorb this level of cost is uncertain.  Officials in each of the
three Northeast Corridor states we talked to--New Jersey, New York,
and Pennsylvania--said they would have a difficult time providing
additional money for passenger rail service if Amtrak went out of
business.  If funds were not available, states and commuter rail
authorities might look to the federal government to help pay any
additional costs.  One state we talked to--New York--told us it would
expect the federal government to pay for any costs the states would
have to absorb if Amtrak were liquidated. 

Given the critical role of the Northeast Corridor and the 100 million
passengers served annually, the states' inability to absorb costs
could dramatically affect the continuation of service along the
Corridor.  However, two commuter authorities--New Jersey Transit and
Southeastern Pennsylvania Transportation Authority--told us that they
would not need all of the tracks and other infrastructure currently
in place on the Corridor.  In addition, their trains are not as fast
as Amtrak's (traveling about 80 miles per hour compared with Amtrak's
125 miles per hour on some portions of the Corridor) and would not
need an infrastructure that supports high-speed service. 
Consequently, they believe the physical plant could be pared back to
reduce costs.  While the commuter authorities' infrastructure needs
might be reduced, they might have additional costs to use the
facilities and/or to perform such services as dispatching trains
(which Amtrak currently provides) if Amtrak were liquidated. 


--------------------
\30 One commuter railroad we spoke with--Metro-North Railroad--does
not expect that its operation would be significantly affected if
Amtrak were to be liquidated.  Metro-North officials said Amtrak pays
to use the railroad's tracks, and Metro-North does not need to access
Amtrak's tracks to provide service. 

\31 This represents separate (unlinked) passenger trips in calendar
year 1996.  All trips may not have been on the Northeast Corridor. 

\32 Access to tracks and stations is also important outside of the
Northeast Corridor.  For example, Metra, a commuter rail operator in
the Chicago area, told us that access to Amtrak's Chicago Union
Station would be critical to its operation and that, if required, it
would be willing to take over this station to ensure continued
service. 


      COMMUTER RAIL AGENCIES THAT
      CONTRACT WITH AMTRAK AND
      FREIGHT RAILROADS COULD FACE
      HARDSHIPS
---------------------------------------------------------- Letter :6.3

Amtrak's liquidation could create some degree of hardship for
commuter rail agencies that contract with Amtrak to provide service. 
In fiscal year 1997, Amtrak was the contract operator for seven
commuter rail agencies and was paid about $242 million for its
services.  These services account for about 179,000 passenger trips,
on average, per weekday. 

If Amtrak were liquidated, the commuter rail agencies that contract
their service to Amtrak would have to find new operators.  However,
these agencies could have difficultly in doing this.  According to
the American Public Transit Association, currently only a handful of
operators manage commuter rail service.  These operators are commuter
rail agencies that provide the service themselves, contract with
Amtrak, or contract with freight railroads to provide the service. 
As of December 1997, only one nonrailroad, noncommuter rail agency
commercial firm (Herzog Transit Services, Inc.) provided commuter
rail service under contract.  Two of the three commuter rail agencies
that we spoke with that have contracted their service to
Amtrak--Caltrain and Metrolink--said finding new operators could take
time and ultimately be more expensive than their current
arrangements.  Metrolink estimated that it could take up to 12 months
to find a new operator and that costs could be between 10 and 15
percent higher.  The third agency--the Maryland Rail Commuter
Service--was less concerned about finding a new operator than losing
its entire Northeast Corridor service if Amtrak were liquidated. 

Freight railroads that operate on the Northeast Corridor could also
face severe problems if Amtrak were liquidated.  In particular, a
liquidation would raise questions about whether freight railroads
could continue to use the Corridor to provide service.  For the two
freight railroads we talked to (Conrail and the Providence and
Worcester Railroad), access to the Corridor is integral to their
operations.  Both said the loss of this access could substantially
impair their business.  For example, Conrail operates 56 trains a day
on the Northeast Corridor, with roughly 35,000 carloads of freight
monthly and $37 million in monthly revenues.  According to the
Providence and Worcester Railroad, the use of the Corridor represents
about 40 percent of its business and about 25 percent of its annual
revenue.  The loss of this business would cause both the railroad and
its customers economic damage.  Like the commuter railroads, freight
railroads operate on the Northeast Corridor under an easement. 
Officials from both railroads said they would take action as
necessary to continue service and to ensure they could continue to
exercise their easement to provide freight service. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

We provided Amtrak and FRA with a draft of this report for review and
comment.  We met with Amtrak's Vice President for Government Affairs
and its Vice President and General Counsel.  Amtrak agreed with the
contents of the draft report and offered several technical and
clarifying comments, which we incorporated where appropriate.  We
also met with FRA's Chief Counsel, Deputy Chief Counsel, and
Associate Administrator for Railroad Development.  As with Amtrak,
FRA agreed with the contents of the draft report and offered
technical comments, which we incorporated where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To identify the financial issues associated with a possible
liquidation of Amtrak, we reviewed Amtrak's September 1997 analysis
in a draft paper entitled "Budget Implications of a Zero Federal
Grant:  Why Zero Isn't Zero." This analysis identifies Amtrak's
estimate of the various costs associated with a possible liquidation. 
To understand how it was prepared, we discussed this analysis,
including assumptions, methodology, and data sources, with Amtrak
officials.  However, we did not verify the estimates in Amtrak's
analysis.  To identify other issues associated with a potential
liquidation, we met with a variety of officials from federal and
state governments, commuter and freight railroads, and individuals
with experience in railroad reorganizations and restructurings.  We
discussed the potential operational, financial, and legal
implications of Amtrak's liquidation with these individuals and
organizations.  A list of the persons and organizations that we
contacted is contained in appendix II. 

We did not develop an independent estimate of the costs associated
with a liquidation nor of the costs and implications associated with
other scenarios, such as a reorganization of Amtrak.  Finally, we did
not attempt to quantify indirect effects, if any, resulting from a
possible Amtrak liquidation, such as effects on highway and aviation
congestion, air quality, and energy consumption.  We performed our
work from July 1997 through February 1998 in accordance with
generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to congressional committees with
responsibilities for transportation issues; the Secretary of
Transportation; the Administrator, Federal Railroad Administration;
and the Director, Office of Management and Budget.  We will also make
copies available to others upon request. 

If you or your staff have any questions about this report, please
contact me at (202) 512-3650.  Major contributors to this report were
Helen Desaulniers, Richard Jorgenson, James Ratzenberger, and Carol
Ruchala. 

Phyllis F.  Scheinberg
Associate Director, Transportation Issues


SIGNIFICANT ASPECTS OF THE
RAILROAD BANKRUPTCY PROCESS
=========================================================== Appendix I

Chapter 11 of the Bankruptcy Code, which generally sets out
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\33 totaled at least $10,000 could file an involuntary
petition.  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.  This list is submitted by
the Secretary of Transportation to the U.S.  Trustee (an official in
the Department of Justice) for the region in which a petition was
filed.  The trustee becomes the administrator of the debtor's estate
and, with court approval, would likely hire attorneys, accountants,
appraisers, and other professionals 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.\34 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, 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.\35

Furthermore, the trustee would have to decide whether to assume or
reject Amtrak's obligations under executory contracts\36 and
unexpired leases.  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,\37 (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.\38 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.  While 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 pre-existing 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.  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\39

(other than certain priority claims) and interests; (2) specify the
unimpaired classes of claims or interests; (3) explain how the plan
would treat impaired classes of claims or interests;\40

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 post-petition
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,\41 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\42
arising no more than 6 months prior to the bankruptcy petition would
also have priority.  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.\43 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,\44 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 post-petition 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. 


--------------------
\33 An unsecured claim is one not supported or backed by collateral. 

\34 With limited exceptions, Amtrak would continue to be subject to
otherwise applicable federal, state, and local regulation.  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 that would result in a financial
obligation or expenditure from the estate would have to be approved
by the court. 

\35 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. 

\36 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. 

\37 The trustee would not be required to cure a default attributable
solely to a contract or lease provision that provides that the
commencement of a bankruptcy case constitutes a default. 

\38 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. 

\39 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. 

\40 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. 

\41 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. 

\42 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. 

\43 A class of claims accepts a reorganization plan if more than half
of the creditors in that class and those holding two-thirds in the
amount of the claims in the class vote in its favor.  A class of
interests accepts a plan if those holding two-thirds in the amount of
the interests in the class vote in its favor.  Classes of claims and
interests that are not impaired under plan, and the members of such
classes, are presumed to have accepted it. 

\44 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. 


ORGANIZATIONS CONTACTED
========================================================== Appendix II


      FEDERAL AGENCIES
------------------------------------------------------ Appendix II:0.1

Federal Railroad Administration
Railroad Retirement Board


      STATE DEPARTMENTS OF
      TRANSPORTATION
------------------------------------------------------ Appendix II:0.2

California Department of Transportation
Colorado Department of Transportation
Florida Department of Transportation
Illinois Department of Transportation
Louisiana Department of Transportation and Development
New York State Department of Transportation
Pennsylvania Department of Transportation
Wisconsin Department of Transportation


      INTERCITY AND COMMUTER RAIL
      AGENCIES
------------------------------------------------------ Appendix II:0.3

Amtrak
Caltrain (California)
Long Island Rail Road (New York)
Maryland Rail Commuter Service (Maryland)
Metra (Illinois)
Metrolink (California)
Metro-North Railroad (New York)
New Jersey Transit
Southeastern Pennsylvania Transportation Authority


      FREIGHT RAILROADS
------------------------------------------------------ Appendix II:0.4

Conrail
Providence and Worcester Railroad


      LABOR UNIONS
------------------------------------------------------ Appendix II:0.5

Brotherhood of Locomotive Engineers
Brotherhood of Maintenance of Way Employees
Brotherhood of Railway Signalmen
Transportation Communications International Union
Transport Workers Union of America


      AMTRAK LENDERS
------------------------------------------------------ Appendix II:0.6

Kreditanstalt fï¿½r Wiederaufbau (Germany)
Export Development Corporation (Canada)


      LEGAL AND RAILROAD
      REORGANIZATION EXPERTS
------------------------------------------------------ Appendix II:0.7

Robert Blanchette, Retired
John Broadley, Jenner and Block
Charles Hoppe, Charles W.  Hoppe, Inc.
Daniel Murray, Jenner and Block


      AUDITING FIRM
------------------------------------------------------ Appendix II:0.8

Price Waterhouse


      ASSOCIATIONS
------------------------------------------------------ Appendix II:0.9

American Bankruptcy Institute
American Public Transit Association
American Short Line and Regional Railroad Association


*** End of document. ***