CMQ Profitability

A hedge fund won't hold onto an asset unless it provides adequate return on their investment. They have pumped many millions into the CM&Q, and are barely profitable. On a cash flow basis, perhaps they are not. The hard part is ahead, growing the business to the point where their return on capitol is adequate to keep them interested. So where is the new business they need to make this happen? Not trying to be negative, I am so glad they are involved and have kept these lines alive. Just thinking of the future.

Sorry to repeat, but Fortress in this case is a private equity fund, not a hedge fund. Let's use a generic example of how these things work, because I think it might make it clearer.

AB&C Inc. is a PE firm. The managers of AB&C think there is an opportunity to make money in the Widget industry. They form a new entity called ABC Widget I LLP. ABC's sales reps go out and get investors to sign on as limited partners in ABC Widget I. The investors commit to make capital available, on 60 days notice, up to a certain total amount, for 10 years. After the 10 years are over, ABC Widget I will unwind and distribute (hopefully) initial capital plus profits to the limited partners and the general partner, AB&C Inc.

The terms will of course vary from firm to firm, but this general outline holds true across the whole industry. The bottom line is that PE investors don't go into deals expecting to make a return the first year, or maybe even the fifth. They're in it for the long haul, across business cycles. In some cases it's quite literally the same investors that buy timberland that won't be ready for harvest for 40 years.

Look for cmq to all but abandon the Newport sub. We'll be looking at 2-3 trips a month to newport shortly... worst railroad in the history of vt. Period. But we should be thankful that they are making a profit. Heres to many more years of deggresion to abandonment under cmq of this beat down line... I wonder how much "profit" they'll make when they start ripping up rails... CMQ is an utter disaster...

Certainly way worse than the Guilford eminent domain issue with Amtrak. Why would they rip up the line? Certainly the state wouldn't allow that to happen. Also, it seems lately that they've been moving about 50-60 carloads per week over the Conn River, seems to be about what MMA did?

50 to 60 car loads per week? Where are you getting your info? Not even close... That's what management thinks but they are ignorant... Some of the most ignorant management we have ever seen. 1 trip to newport in the last 9 days and only 17 loads moved in interchange over conn river. This is the average. And a disgrace to the efforts of the people relying on this under achieving railroad to make a living. As I have said, a complete and utter disaster the likes northern new England railroading has not seen in decades. Short live the CMQ...

I thought I was the dramatic one here.... I guess when you are in charge of the railroad things will be much differently. Let me know when you're in line as CEO...

I don't think you would see the Newport sub abandoned. If that ever happened you see state Vermont stepping in to buy that line. There great potential for that line being though route again

I'm pretty sure the court-approved bankruptcy sale of MMA prevents anything from getting scrapped or partitioned for a period of (10?) years. That was key part of the deal to keep the Moosehead from getting abandoned.

If CMQR wanted to scrape off the Newport Sub, VRS would be very much interested in buying. But the parties would have to reopen the bankruptcy proceeding for court approval, so it wouldn't be a traditional 1-on-1 transaction. So long as they make a strong case that VRS will be a good steward for that branch (not a hard case to make) I don't see why the transaction wouldn't be approved as an exemption to the "hands-off" timeline in the MMA sale. The bankruptcy court's ultimate concern is the health and survival of the railroad(s), and if such a transaction were a net-gain for health and survival they have motivation to approve.

dustybroe wrote:I don't think you would see the Newport sub abandoned. If that ever happened you see state Vermont stepping in to buy that line. There great potential for that line being though route again

Its practically abandoned now.... I agree with you there is great potential, just need a different operator...

It seems to me that Irving traffic has a choice of Pan Am south from NMJ or the Newport branch, both of which need more traffic. Just not enough to feed two mouths. Yes, private equity has a long term approach to investments, better than a hedge fund, but where is the extra traffic going to come from to make CMQ solidly profitable?

gpp111 hits the crux of the problem. Bad management can drive away freight volume, but great management and loads of investment do not guarantee volume growth. Without opinion as to CMQ's expertise, their numbers indicate handling 75 loads per day. Given the size of the system, that is concerningly light, esp as much of that is overhead traffic. Also remember that Q1 numbers include Rockland branch activity. Note that the $6 million government investment subsidy they mention equals almost three months of revenue. Too much railroad, not enough business.

Hello,
As much as I hate to do this (says the smiling, smirking scientist in the crowd), I thought I'd interject some real numbers into this discussion in regards to the numbers of cars being interchanged between CMQ and WACR in Newport, Vermont:

Based on observations of 26 WACR trains during the 2nd quarter of 2016, CMQ and WACR interchanged an average of 45 cars per week in Newport. However (and this is an important caveat), only half of those cars were loads, and the other half were empties, so that there were roughly 22-23 loads per week moving through this interchange.

Thus, CN9634's quoted 60-70 cars per week is probably roughly correct, as I assume that his number includes both loads and empties as well as the cars being moved for customers along the Newport Subdivision (Performance Plastics and Kaytec in Cowansville; Blue Seal Feeds in Richford; and Poulin Grain, Feed Commodities, and Columbia Forest Products in Newport).

Obviously, this is far below the 50 loads per week that CMQ committed to delivering when they asked the VRS to increase their operations to five days per week (or the 100 cars per day they apparently flouted when they first took over the former MMA) and only about 40% of what the MMA and WACR were interchanging in the 2nd quarter of 2013, just prior to the MMA's demise.

I hope these numbers help.
Have a good day,
Fritz

Maybe there isn't enough traffic to send down the Conn river? Gimme a break, doesn't the customer specify how they want the traffic routed. VRS may offer a cheaper rate, but it may take 2 or three days longer. Time saved in moving the traffic on another route may be worth the extra few cents. I believe CSX 2039 may be a customer of CMQ directly or indirectly. If that's the case he should order 50 to 100 cars a week for his business, and I'm willing to bet that CMQ will be there 3 to 5 days a week and he will happy. Just wondering.

Being that VRS also connects with NECR/PAR/whoever down at WRJ, aren't a fair amount of local cars on the WACR served from points south only?

Casey,
Yes, the WACR receives almost all of its local traffic through White River Junction, mostly from either CN (barley malt, fertilizer, fuel oil, grain, wood pulp) or CSX (calcium chloride, fertilizer, grain) via the NECR. Occasionally loads move across the Green Mountain Gateway (GMRC) and then north on NECR (mostly road salt in the winter but maybe some grain delivered from CP). Local and through traffic very rarely, if ever, moves via PAS (I don't know if they even come to White River Junction anymore). Occasionally, local traffic comes south off of CMQ (mostly fertilizer and grain), but that is rare.
Best,
Fritz