What's next for MMA?

NYCS wrote:Wouldn't any potential buyer of MM&A also be assuming the legal liability of the company? I'm not too familiar with corporate/railroad law... but would MM&A by simply "declaring bankruptcy" eliminate its legal and financial distress, thus absolving the suitor (buyer) of the mess? I would imagine any buyer of MM&A would inherit the legal and financial burdens of the company, not to mention to public scrutiny and NIMBYism that is sure to follow all along the route...

When a company declares bankruptcy, the assets are sold off and the proceeds used to satisfy creditors. If another company buys the railroad out of bankruptcy, they would be buying the physical assets-- the rails, ties and right of way-- but not the company. Liabilities remain with the bankrupt company, and the bankrupt company remains in existence until all claims against it are wound down. This can take years-- Penn Central, for example, didn't cease to exist as a corporate entity until 1994 (it was primarily an insurance company by then, and changed its name to American Premier Underwriters.)

ridgefielder- the first crude by ship out of albany was the stena primorsk. gross ton 36618. carried about 279000 barrels. 377 railcars. the afrodite that you mentioned - 30000 gross tons carried about 231000 barrels 312 railcars. irving needs about 400 railcar per day. i'm thinking that irving is grabbing anything to cover the mma shortfall but, long term? albany then water is 6 days , rail 2 days? obviously rail is the winner. so why doesn't pan am go full bore and lock this business? ken patrick

Ridgefielder wrote:

NYCS wrote:Wouldn't any potential buyer of MM&A also be assuming the legal liability of the company? I'm not too familiar with corporate/railroad law... but would MM&A by simply "declaring bankruptcy" eliminate its legal and financial distress, thus absolving the suitor (buyer) of the mess? I would imagine any buyer of MM&A would inherit the legal and financial burdens of the company, not to mention to public scrutiny and NIMBYism that is sure to follow all along the route...

When a company declares bankruptcy, the assets are sold off and the proceeds used to satisfy creditors. If another company buys the railroad out of bankruptcy, they would be buying the physical assets-- the rails, ties and right of way-- but not the company. Liabilities remain with the bankrupt company, and the bankrupt company remains in existence until all claims against it are wound down. This can take years-- Penn Central, for example, didn't cease to exist as a corporate entity until 1994 (it was primarily an insurance company by then, and changed its name to American Premier Underwriters.)

Yes. And this helps Maine's chances of acquiring the ROW and physical plant outright under public ownership at a good price, since PC's liquidation brought a HUGE windfall of lines active and abandoned into MBTA, CDOT, MTA, NJDOT, etc. ownership. Most likely that is what's going to happen on the U.S. side...ME and VT (for its small portion) will step in and claim first dibs. Then the operators that buy out MMA, rolling stock, and non-ROW infrastructure will take the rest. With potentially only the Quebec ROW's remaining under private ownership under the new operator(s).

If Irving wants to make a play cost-controlled for all the Maine MMA lines, the state might even try to barter with them for public ownership of the Brownville-Canadian border EMRY to control the entire cross-state route for future Quebec-U.S.-New Brunswick passenger considerations (since it was a Canadian intercity route until the early-90's). That would bring all non-PAR, non-SLR trackage in the entire state under public control. A sea change from the current situation where well over half the total in-state trackage is still private.

It's official...

WCSH-6 wrote: Montreal Maine & Atlantic Railways has filed for Chapter 11 bankruptcy protection.

MMA's claim came in at 2:41pm. The company is claiming $50 to $100 million in assets.
. . .
There's no word yet on a motion to set a hearing date for the case. More details tonight on NEWS CENTER.

Read more at: http://www.wcsh6.com/news/local/story.a ... yid=252438" onclick="window.open(this.href);return false;

From the Bangor Daily News:

Bangor Daily News wrote:Montreal, Maine and Atlantic Railway, based in Hermon, filed for Chapter 11 bankruptcy, according to the federal court system’s electronic case filing system. Its Canadian counterpart, Montreal, Maine and Atlantic Canada Co., also filed on Wednesday a petition seeking relief under the Companies’ Creditors Arrangement Act in Superior Court of Quebec in Montreal, officials said.

Chapter 11 bankruptcy would allow the company to reorganize its debt and continue operating.
. . .
Ed Burkhardt, president of MMA parent company Rail World Inc. of Des Plaines, Ill., released a brief statement.

“It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries,” Burkhardt said.

Burkhardt called the bankruptcy and its Canadian equivalent, which the company also seeks, “the best way to ensure fairness of treatment to all in these tragic circumstances.”

“MMA wishes to continue to work with the Quebec Ministry of the Environment, the municipality of Lac-Megantic, and other government authorities in the continuing environmental remediation and clean-up as long as is necessary,” Burkhardt said.

Read more at: http://bangordailynews.com/2013/08/07/b ... ankruptcy/" onclick="window.open(this.href);return false;

I am mildly surprised after all this that they are filing Chapter 11 (reorganization) and not Chapter 7 (liquidation). However, for a railroad this may be the normal course of action in order to allow for a more orderly transition to a new owner.

Note that NBSR (Irving) is their biggest creditor.

The Portland Press Herald has this to say about MMA's various creditors:

The Portland Press Herald wrote:The railway’s largest secured creditor is the federal government, according to bankruptcy documents.

MMA still owes $27.5 million on a $34 million Federal Rail Administration loan issued in March 2005, the documents said.

The company’s second-largest secured creditor is Wheeling & Lake Erie Railway Co., with which MMA has a maxed-out, $6 million line of credit, according to the documents.

MMA’s largest unsecured creditor is New Brunswick Southern Railway Company Ltd., to which it owes an alleged $2 million, according to the filing.

However, MMA is disputing that debt, court documents show.
. . .
The second-largest unsecured creditor is Ed Burkhardt, president and CEO of MMA’s parent company, Rail World Inc.

Burkhardt is owed about $786,000 for “indemnification and/or contribution in connection with wrongful death litigation and other claims,” a likely reference to money Burkhardt has paid out of his own pocket in connection with wrongful-death lawsuits filed by the residents of Lac Megantic.

Read more at: http://www.pressherald.com/news/Montrea ... uptcy.html" onclick="window.open(this.href);return false;

Ah, thanks for that.

Tough position for Irving but hopefully they will be able to influence the proceedings as part of the creditor's committee.

Another key question answered (from the above ref'd article):

Because railroads are critical for commerce and have monopoly status, U.S. bankruptcy law has special rules to ensure that railroads continue to operate and are not liquidated. In fact, railroads are not allowed to file for Chapter 7, which is used when a company closes its business and sells off its assets.

What is the deal with WLE and the line of credit. Larry Parsons was on the MMA board at one time. Is he one of the 20 anonymous owners of MMA? Why else would WLE extend a line of credit?

One thing to note in thinking about MMA's future. It's been nearly five weeks, and there's not been so much as a whimper from the shipping community about the need to get International of Maine connection reopened. (If there has I haven't read about it.) I think that is pretty telling. Also, look at spreads between Brent and WTI crude: WTI, which had been trading at ~$15/bbl discount has now creeped up close to parity. Irving may revert to their historic buying pattern of Brent-based vessel deliveries.

Of interest, from a review of the M M & A Bankruptcy Petition (lest we forget, a debtor petitions for bankruptcy protection instead of the colloquial declares bankruptcy), there is no reference to secured creditors within such. As a result, I'm at a loss to know the Portland paper's source for their report that the US Government is the largest secured creditor.

I note however, that the Maine revenue agency is listed as an unsecured creditor, nature and scope of their claim is not explained.

Now there is one creditor that is not listed because at present there is no liability. That is the financial institution that will extend to MM&A 'Debtor In Possession' credit line. Such line may only be used to satisfy post-Bankruptcy claims, such as post bankruptcy employee wages, yet that creditor stands in line for the 'spoils' only behind, the government for taxes, wages, and, you guessed it, attorneys and CPA's.

From The Portland Press Herald:

The Portland Press Herald wrote:The filing gives the company "breathing space" as it searches for a buyer or works to straighten out its affairs so it can continue operating, said the railroad's attorney, Roger Clement of Verrill Dana in Portland.
. . .
There have been discussions with potential buyers, but nothing has "jelled," Clement said. A decision about selling the railroad may be made over the next few weeks, he said.

Read more at: http://www.pressherald.com/news/Montrea ... uptcy.html" onclick="window.open(this.href);return false;

Cowford wrote:It's been nearly five weeks, and there's not been so much as a whimper from the shipping community about the need to get International of Maine connection reopened.

There have been some wimpers from at least one shipper:

The Portland Press Herald wrote:Steve Banahan, sales and transportation manager for Moose River Lumber in Moose River, said he hopes the line will reopen so his company can ship to Montreal.

The company processes spruce fir from Maine and Quebec and turns it into dimension lumber for building houses. It produces about 120 million board feet per year, according to its website.

The company relies on the railroad for bringing logs in as well as shipping lumber out. The lumber is shipped west, passing through Lac-Megantic on its way to Montreal, before being distributed along the eastern seaboard, Banahan said.

With the Lac-Megantic rail yard closed, lumber must travel back east to Brownville Junction, which costs about $500 to $1,500 more per car. In the course of a year, the company ships about 150 to 200 cars, Banahan said.

"We've felt the impact both on the inbound side, with our raw materials, as well as on the outbound side, trying to get our product to other markets," he said.

Read more at: http://www.pressherald.com/news/Montrea ... uptcy.html" onclick="window.open(this.href);return false;

Gilbert B Norman wrote:from a review of the M M & A Bankruptcy Petition, there is no reference to secured creditors within such. As a result, I'm at a loss to know the Portland paper's source for their report that the US Government is the largest secured creditor.

It's from this link, asking to spend some of Wheeling & Lake Erie's Accounts Receivable collateral and replace it with new collateral.
http://media.kjonline.com/documents/Motion+by+MMA.pdf
Also, the $785,985.88 claim owed to Mr. Burkhart is really owed to Rail World, Inc., and his name is part of the mailing address of the "employee ... familiar with the claim who may be contacted". Do newspapers ever read every word of their source documents?

i'm guessing they didn't have 'officers & directors ' insurance, i don't think the payment to mr burkhardt will survive. the articles of incorporation probably prohibit payments for legal issues arising out of malfeasance. i recognize that he no longer is a shareholder but he operates in a control position which ties him to the malfeasance. a $34mil fra loan is surprising. what was it used for? also $6mil from w&le? i'm sure w&le is now awaiting court filings drawing them into the litigation circus. i remain baffled as to how sentient people would place their future on one person's simplistic actions. ken patrick