MONTREAL – The former owner of one of the largest short-line railways in the United States has been given the green light to purchase the insolvent railway involved in last summer’s deadly accident in Lac-Megantic, Que., that claimed 47 lives.
Judges in Quebec and Maine on Thursday approved the sale of Montreal, Maine and Atlantic Railway, which operates about 770 kilometres of track in Maine, Vermont and Quebec.
Railroad Acquisition Holdings LLC, an affiliate of New York-based Fortress Investment Group, will pay US$14.25 million for the entire network in both countries.
More than US$1.6 million is also expected to be received from the dispersal of 25 locomotives to other buyers or from a return to the lender, according to U.S. bankruptcy trustee Robert Keach.
The winning bidder had also served as the “stalking horse” bidder, setting a minimum bid for the MM&A’s assets.
Fortress used to own a 60 per cent stake in Rail America before it was sold in 2012 a few years after the company went public. It still operates short-line railways including Florida East Coast Railway.
More than 40 potential bidders expressed an interest in buying all or parts of the MN&A, but only 18 signed confidentiality agreements to gain access to internal financial numbers. Fortress was the only bidder for the entire network while two others bid for a portion of the U.S. operations.
Keach said he’s pleased to have been able to sell the railway to an experience rail operator with access to capital that would run the entire system and make the required investments.
“We think Fortress is getting a good deal, but we also think that the region on both sides of the border are also getting a really good operator, so we’re pleased,” he said in an interview from Maine.
Fortress is a global investment management firm that acts on behalf of more than 1,500 institutional investors and private clients around the world.
Proceeds from the sale will mostly go to secured creditors while a $25-million insurance policy and efforts to recover additional claims will be dispersed to victims of the disaster.
The U.S. trustee and its Quebec counterpart will continue to oversee legal claims and payments to victims long after the railway sale is completed.
A claims process is about to be finalized, with claims not likely to be filed until the end of May, Keach said.
“I hope in this calendar year that we’ll start actually dispersing money.”
The transaction is expected to close by March 14, but could be extended by two months to obtain regulatory approval in Canada and the United States.
XL Insurance Company says it won’t renew the railway’s policy when it expires April 1, although the trustee is negotiating an extension, according to an update to the Quebec Superior Court. The Canadian Transportation Agency requires insurance coverage before it will grant an operating licence.
More than 40 potential bidders expressed an interest in buying all or parts of the railway, but only 18 signed confidentiality agreements to gain access to internal financial numbers. Some bidders were initially interested in some operations but only Railroad Acquisition Holdings ultimately wanted the entire network.
The Quebec-appointed monitor, Richter Advisory Group, recommended approval of the sale.
“The offer is for all of the assets and will result in the continued operation of railroads in both Canada and the United States, which is in the public interest,” it wrote in a Jan. 22 report to the court.
Richter said the sale allows for the majority of employees in Canada to keep their jobs and that the offer was “beneficial” to the economic development of the communities along the railway.
Note to readers: This is a corrected story. A previous version said the total sale price was US$16.85 million.