Blogs & Comment

Last stop for Railpower?

Liquidation may be the only option left for Railpower Technologies. The Quebec-based manufacturer of low-emission hybrid locomotives sought bankruptcy protection in February and announced on Fridaythat although it had received “expressions of interests” from potential buyers and investors, none of those options is “likely to enhance recoveries for the creditors beyond liquidation value.” Nor will any such liquidation generate any value for shareholders.
Railpower seemed to be on track a couple of years ago. Its fuel-efficient technology promised to save rail companies money, and it received a vote of confidence from the Ontario Teachers’ Pension Plan, which invested $35 million in 2007 and another $20 million last year in exchange for convertible debentures. (OTPP is Railpowers largest creditor.)
But Railpower has never turned a profit and failed to secure any significant orders for its locomotives last year. Construction on its manufacturing plant in Quebec ceased in the fall, and nearly 40% of the companys staff was laid off in January, leaving 84 employees.
The company maintains in its latest release that it continues the search for alternatives, and that it may seek to extend its creditor protection order, which expires tomorrow. (Railpower was already granted an extension last month.) It is tough to foresee a positive outcome, however. The U.S. may be cracking down on emissions in the transportation industry, which was supposed to be a major driver of Railpowers business, but the company has much stronger competitors, primarily GE Transportation and National Railway Equipment. Neither of those two companies suffered the corporate and public relations disaster that Railpower did, either.
The firms flagship product, a low-emission and fuel-efficient locomotive called the Green Goat, proved to have a major safety flaw: a battery leak that could cause the locomotive to burst into flame. More than 60 locomotives were recalled, which had cost the company around $20 million as of last year. Shares plummeted after the recall and Railpower became a penny stock.
The flaw was discovered shortly after Jos Mathieu joined the company as CEO in 2005, and the problem caught both him and the board by surprise. The magnitude of the turnaround before Mathieu was so large that when I spoke with Cormark Securities analyst MacMurray Whale last yearabout Railpower, he wondered, “If you go back and ask Mathieu, ‘If you knew what you know now, would you go back and quit your job?’ I would be really interested to know.”
Whatever the case, Mathieu was shown the door when Railpower filed for bankruptcy protection in February. The company may get another extension tomorrow, but with tight credit markets, dim sales prospects and the spectre of the Green Goat still hanging around the company, this could be the end of the line for Railpower.
Further reading: Railpower in its glory days, when it was set to “revolutionize the railway industry.”