Acela I/HHP-8 accounting question

Reading the HHP-8 thread, as well as past Acela I threads, I am very confused at the ownership/lease thing. Apparently these trains are actually owned by some kind of firm, and Amtrak just leases them? Why? What is the accounting reasoning behind this? Can someone explain this like I'm 5?

I can try.
There's two reasons stuff like this happens (and I believe Amtrak has done both).

"I want that $1,000 toy, but I can only pay $100 this month". So, your credit card company says "Great, works for me, pay us $100/month for 12 months and you've got yourself a deal." i.e. you may not have all the money up front, so you pay it a bit at a time.

Or, "I own this $1,000 toy, but I need $800 this month to buy some new toys. I'll sell it to you for $1,000, and then lease it back for $100/month for 12 months." So you still get the benefit of the first toy, but now you can afford the 2nd. And while this may seem silly, imagine if the 2nd toy starts earning you $120/month for the next 12 moths. You come out $240/head than if you didn't do anything.

There's also tax and accounting implications: buying something puts it in a capital expense, leasing an operating expense. With a capital expense, you do get the benefit of being able to depreciate it, which can help your taxes. and I believe if you agree to sell it, you can take the depreciation all at once, which again helps your taxes.

Such arrangements are not uncommon, especially for large capital items that can suffer a lot of wear and tear. I believe a few major airlines lease much of their fleets for the same reason.

There's other benefits too, but I believe the above describes the biggest ones.

Greg Moore wrote: ↑Mon Dec 13, 2021 3:48 pm Such arrangements are not uncommon, especially for large capital items that can suffer a lot of wear and tear. I believe a few major airlines lease much of their fleets for the same reason.

In good times, airlines keep about a 50/50 balance on leased vs. owned aircraft. When you hit things like COVID, leased equipment give you the flexibility to threaten to return airplanes when the lessor least wants them back, so they'll renegotiate lower rates to avoid being stuck with an asset they can't place elsewhere....

Owned equipment is a regular source for raising cash... especially if done as a sale/leaseback.

Greg Moore wrote: ↑Mon Dec 13, 2021 3:48 pm I can try.
There's two reasons stuff like this happens (and I believe Amtrak has done both).

"I want that $1,000 toy, but I can only pay $100 this month". So, your credit card company says "Great, works for me, pay us $100/month for 12 months and you've got yourself a deal." i.e. you may not have all the money up front, so you pay it a bit at a time.

Or, "I own this $1,000 toy, but I need $800 this month to buy some new toys. I'll sell it to you for $1,000, and then lease it back for $100/month for 12 months." So you still get the benefit of the first toy, but now you can afford the 2nd. And while this may seem silly, imagine if the 2nd toy starts earning you $120/month for the next 12 moths. You come out $240/head than if you didn't do anything.

There's also tax and accounting implications: buying something puts it in a capital expense, leasing an operating expense. With a capital expense, you do get the benefit of being able to depreciate it, which can help your taxes. and I believe if you agree to sell it, you can take the depreciation all at once, which again helps your taxes.

Such arrangements are not uncommon, especially for large capital items that can suffer a lot of wear and tear. I believe a few major airlines lease much of their fleets for the same reason.

There's other benefits too, but I believe the above describes the biggest ones.

I believe its number 2. Amtrak owned the Acelas/hippos , but sold them and leased them back . Part of the glide path to self sufficency in the Warrington era . I think they sold Penn station and other property at the same time.

Greg Moore wrote: ↑Mon Dec 13, 2021 3:48 pm I can try.
There's two reasons stuff like this happens (and I believe Amtrak has done both).

[...]

There's also tax and accounting implications: buying something puts it in a capital expense, leasing an operating expense. With a capital expense, you do get the benefit of being able to depreciate it, which can help your taxes. and I believe if you agree to sell it, you can take the depreciation all at once, which again helps your taxes.

In this case Amtrak is in essence selling the depreciation. Capital equipment depreciates and a for-profit company can deduct depreciation from its taxes. Amtrak isn't for-profit, it's government owned so it doesn't pay taxes in the traditional sense. Amtrak can buy equipment that's custom ordered and then sell it to a leasing company that will lease it back to Amtrak. Amtrak pays a recurring lease fee, the owner makes money off of the lease and takes a tax writeoff as the equipment depreciates.

I've seen so much conflicting info on what Amtrak currently owns or leases. Amtrak may have leased certain units and then bought them back. The latest Equipment Asset Line Plan I've seen suggests Hippos are leased and 19/20 Acelas are leased.

David Benton wrote: ↑Tue Dec 14, 2021 3:54 am I believe its number 2. Amtrak owned the Acelas/hippos , but sold them and leased them back . Part of the glide path to self sufficency in the Warrington era . I think they sold Penn station and other property at the same time.

So, why did Amtrak sell them to Philip Morris, a tobacco company?

PM isn't just tobacco. Phillip Morris Capital does leveraged leasing for aircraft, rail equipment, manufacturing facilities, real estate, power generation and wind farms.



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Correcting my own post, my recollection now is that they mortgaged Penn station , they didn't sell it. Possibly they sold some air rights at CUS???Mr Norman would recall,I'm sure.

eolesen wrote: ↑Tue Dec 14, 2021 8:18 pm PM isn't just tobacco. Phillip Morris Capital does leveraged leasing for aircraft, rail equipment, manufacturing facilities, real estate, power generation and wind farms.



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Correct. There used to be a decent number of companies who had divisions who engaged in such financing schemes. Various compliance and regulatory changes have made it less advantageous for non-financial institutions to engage in such financing/leasing structures. PMCC's portfolio is in runoff mode for example.

Amtrak's current motive power has been leased or financed by a variety of sources with the ACS-64s part of a lease trust ran by Wells Fargo, some of the Chargers leased by Siemens Financial Services, Deutsche Bank, and some of the Genesis locomotives being subject to loans to PNC that just paid off.

WhartonAndNorthern wrote: ↑Tue Dec 14, 2021 8:04 am I've seen so much conflicting info on what Amtrak currently owns or leases. Amtrak may have leased certain units and then bought them back. The latest Equipment Asset Line Plan I've seen suggests Hippos are leased and 19/20 Acelas are leased.

The STB filings indicate that the ACS-64 and SC-44s are leased, the Genesis locomotives were subject to loans that were recently paid off, and the Philip Morris Acela and HHP-8 leases were just paid off.

rcthompson04 wrote: ↑Wed Dec 15, 2021 8:09 am The STB filings indicate that the ACS-64 and SC-44s are leased, the Genesis locomotives were subject to loans that were recently paid off, and the Philip Morris Acela and HHP-8 leases were just paid off.

Can you point to those filings, Mr. Thompson?

Here are the various filings I am referencing:

Initial Wells Fargo lease for ACS-64 was terminated in 2016: https://dcms-external.s3.amazonaws.com/ ... 73-RRR.pdf

The Mortgage for the loan being serviced by Wilmington Trust for ACS-64s (notice the wrecked units are not listed): https://dcms-external.s3.amazonaws.com/ ... /32423.pdf

The documentation Amtrak recently filed to sell the two totaled units: https://dcms-external.s3.amazonaws.com/ ... QQQQQQ.pdf

Here is the mortgage/security agreement for the Brightline Chargers: https://dcms-external.s3.amazonaws.com/ ... 2832-A.pdf

Here is the mortgage for one of the CalTrain Chargers: https://dcms-external.s3.amazonaws.com/ ... 0186-A.pdf

Here is a lease termination for three Acela sets: https://dcms-external.s3.amazonaws.com/ ... 3781-D.pdf

Here is the lease termination for the Philip Morris Acelas and HHPs: https://dcms-external.s3.amazonaws.com/ ... 3229-M.pdf

Sometimes these security interests involve certain equipment as shown by this SEPTA filing for LED lighting: https://dcms-external.s3.amazonaws.com/ ... /32019.pdf