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DM&E lands $233.6 million RRIF loan — the largest FRA's doled out to date

On Jan. 7, the Federal Railroad Administration granted the largest Railroad Rehabilitation and Improvement Financing (RRIF) loan since the program was launched in 2001 as part of the Transportation Equity Act for the 21st Century (TEA-21) — $233.6 million to Dakota, Minnesota & Eastern Railroad Corp. (DM&E) and its subsidiary Iowa, Chicago & Eastern Railroad Corp. (IC&E).

The 1,103-mile DM&E and 1,403-mile IC&E plan to use $194.2 million to refinance debt for line acquisitions and track rehabilitation; $24.4 million to improve lines between Wolsey, S.D., and Tracy, Minn.; $5.9 million to improve bridges to accommodate 286,000-pound rail cars between Wolsey and Springfield, Minn.; and $9.1 million to upgrade Owatonna, Minn.-to-Mason City, Iowa and Lawler-to-Calmar, Iowa lines.

In 2005, the railroads expect to install 100 miles of rail, replace tens of thousands of wood ties, surface track and improve bridges.

The debt refinancing will improve cash flow, freeing up funds to improve infrastructure, address deferred maintenance and complete other capital improvements, says DM&E President and Chief Executive Officer Kevin Schieffer.

"One reason we obtained the loan and other railroads haven't in the past is because we voluntarily committed to use funds freed up from the refinancing on future capital expenditures," he says, adding that RRIF statutes enable railroads to use loans to refinance debt.

However, the loan isn't expected to have any bearing on DM&E's Powder River Basin (PRB) project, under which the regional plans to reach Wyoming coal mines by constructing 280 line miles and rebuilding 600 track miles — other than enabling DM&E officials to turn their attention toward the project.

"We've been focusing on the FRA loan of late, but we're going to redirect our efforts on the PRB this year," says Schieffer, adding that the regional still is trying to attract financing for the project, which will not get under way until next year at the earliest.

RRIF authorizes FRA to provide $3.5 billion in direct loans or loan guarantees to eligible railroads (including $1 billion set aside for regionals and short lines), state and local governments, and government-sponsored authorities to acquire, develop, improve or rehabilitate existing or new intermodal or rail facilities.

Since 2001, FRA has approved RRIF loans for only five regionals and short lines. But the agency is trying to speed and ease the loan application process.

Last month, the John A. Volpe National Transportation Systems Center — which FRA hired in February 2003 to study the RRIF program — issued a report recommending the administration institute a pre-application process, such as a meeting, teleconference or inquiry letter, to preliminarily determine an applicant's eligibility. The center also recommended FRA create a formal application with attachments (applicants now complete a checklist), develop a formal application evaluation and approval process, and institute a tracking system to monitor applicants' status.

The administration expects to grant more RRIF loans to various railroads in 2004, says FRA Public Affairs Specialist Warren Flatau. FRA officials also believe the RRIF program will be included in TEA-21 reauthorization legislation.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 1/8/2004