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10/17/2002



Rail News: Rail Industry Trends

A&K Materials acquired RailAmerica line under false pretenses, STB says


On Oct. 17, Surface Transportation Board revoked exemptions from regulation that enabled SF&L Railway Inc. to purchase from Toledo, Peoria and Western Railway Corp. (TP&W) a 71.5-mile line between La Harpe and Peoria, Ill.


The board directed the parties to negate a nearly 2-year-old purchase agreement, finding that SF&L Railway and its owner A&K Materials abused STB's processes designed to maintain rail service by using those processes to acquire track they intended to sell for salvage rather than operate, according to a prepared statement.


In January 2000, TP&W owner RailAmerica Inc. sold several lines to reduce debt. After failing to reach a purchase agreement with Pioneer Railcorp regarding a portion of TP&W's track by December 2000, RailAmerica sold the segment to A&K Materials.


SF&L Railway obtained ownership of the track and a permanent operating easement over the line while TP&W retained ownership of the underlying real estate.


Pioneer Railcorp later asked STB to revoke SF&L Railway's exemptions from regulation to ensure that Pioneer subsidiary Keokuk Junction Railway Co. (KJRY) maintained its La Harpe connection.


KJRY officials expressed concern that SF&L Railway acquired the line to downgrade service and increase rates, and to obtain abandonment approval to salvage the track.


STB determined that the deal had been intentionally structured to make the line unprofitable to operate and facilitate abandonment, and that SF&L Railway limited the transaction to a line segment ending a mile short of KJRY's connection, preventing KJRY from interchanging traffic with SF&L.


STB also noted that A&K Materials has a prior record of buying rail lines under the board's processes, then abandoning and salvaging them.


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