Railroad finance forum recap: Capital — it's available for the partnership-minded (April 1997)


Looking to buy a rail line or two? As the rail industry consolidation craze continues, there'll be plenty of lines available in the months ahead — and plenty of financing available to fund the acquisitions. If you figure out a way to partner with the seller, you'll improve your chances of making that newly acquired line profitable.

That message came through loud and clear at The Annual Global Forum on Railroad Finance, held March 10-12 in New York City. The event was presented by Information Management Network and Progressive Railroading.

On the heels of the proposed Conrail carve-up, lenders, railroaders and suppliers discussed today's — and tomorrow's — railroad landscape. While acknowledging the pain that comes with industrywide restructuring, forum attendees focused on the opportunities that the current environment offers. Clearly, consolidation isn't making too many strategic thinkers queasy.

In the near term, merger-and-acquisition activity and Class I rationalizations will continue to create opportunities for growth, particularly for short-line operators and the equipment suppliers that serve them.

"Going forward [in the post-Conrail era], I don't expect to see CSX and Norfolk Southern jointly serving cities," said Bruce Flohr, chairman and CEO of short-line holding company RailTex Inc. in his keynote address. "Our segment of the industry will become the white knight solving some of these problems."

And lenders say they'll be more than willing to lend money to those white knights. Even with the acquisition debt some short-line companies and Class Is are carrying, money continues to be available for equipment purchases and line acquisitions alike.

"Ratings from people like Moody's [Investment Services] may have slid in some instances, but the ability to raise capital has not been impaired," said Bill White, a senior financial adviser with Morgan Stanley & Co. Inc. 

A chief reason: Increasingly, there's a willingness among buyers and sellers to form partnerships to ensure that deals — be they line sales or equipment buys — work for both parties. 

"We all have become that much more adept at selling," said Lee Larson, assistant vice president of marketing and sales at Canadian Pacific Railway. "The transactions with short-line operators now are partnerships."

— Pat Foran

Source: The April 1997 issue of Progressive Railroading