CENTRAL MAINE & QUEBEC RAILWAY (CMQ) — New Owner of MMA

[CN9634]

Why the hell would CN be willing to do such a thing?

Fortress needs to be much more competitive. With some investment into the infrastructure and services, they may be able to do this.

[MEC407]

I immediately dropped from any of my imaginary names "Aroostook" since Fortress owns, at best, about 15 miles of track in the county...

Yikes... good point. It's still hard for me to think of this system without thinking of Aroostook County.

[Gilbert B Norman]

A review of the FECH SEC filings will prove relevant to this topic as they will possibly give a more updated picture of a Fortress Investment Group railroad's financial position - and of course a reflection as to how that property is operated. I researched the FEC 2010 FEC Annual Report during 2012 when this All Aboard Florida passenger train initiative was first proposed. If FEC's financial condition has improved to the extent that railroad operations are now providing adequate cash flow for the debt service arising from the LBO, then 'GREAT' -even I remain at a loss as to 'what are they up to' with this passenger train initiative.

Mr. Norman: Given that the real estate crash slammed South Florida particularly hard, and given that 2010 was still a recession year, I'm sure the FEC's numbers looked wretched.

Using the Q you linked to, I crunched some more current numbers on the FEC. Back-of-the-envelope (annualizing the trailing-9-mos numbers in the October 10Q) looks like they generated $96mm in EBIDTA on $270mm in revenue. EBIT was $69mm, annualized debt service was approximately $59mm, so net pre-tax income works out to about $10mm. Those numbers would give you Debt/EBITDA ratio of 6.6x. Also looks like their operating ratio was about 74.

Tough to compare the FEC to any of the publicly-traded roads out there because it's such an odd animal- basically one 350-mile long heavy-duty mainline with no branches that operates like a Class I. The smallest Class I-- KCS-- has annual revenues 9x those of the FEC. But it looks like they in turn are doing 10x the revenue of the P&W. Bottom line though is that they appear to be covering debt service with room to spare.

Also, at least extrapolating from the FEC, it looks like Fortress does know "a way to run a railroad."

(posting quoted in its entirety for ready reference as it first appears several pages ago)

Mr. Ridgefield, I sincerely thank you for the review of the SEC filings you have made, and wholly respect your differing conclusions from mine. Obviously, you are a financial professional well qualified to make such reviews (it's all public record; everyone).

But it should be evident I am not the only skeptic around here with the Fortress' acquisition (subject to Trustee and Court approval) of MM&A's rail assets. I have to wonder just how sincere they are about revitalizing a property comprised of bunch of third hand locomotives, Class III track at best, a declining on-line industrial base, and no assurance that the overhead (bridge; intermediate) traffic mainly comprising crude oil will ever return. Have they in mind to 'flip' the properties back to some public agency (I still think that is what they are up to with the FEC), or have they have some 'Genie in the bottle' to make those properties into a going concern transportation system providing economic value to the region?

Signed; 'Curious'

[Ridgefielder]

But it should be evident I am not the only skeptic around here with the Fortress' acquisition (subject to Trustee and Court approval) of MM&A's rail assets. I have to wonder just how sincere they are about revitalizing a property comprised of bunch of third hand locomotives, Class III track at best, a declining on-line industrial base, and no assurance that the overhead (bridge; intermediate) traffic mainly comprising crude oil will ever return. Have they in mind to 'flip' the properties back to some public agency (I still think that is what they are up to with the FEC), or have they have some 'Genie in the bottle' to make those properties into a going concern transportation system providing economic value to the region?

Signed; 'Curious'

Mr. Norman: I think it's a very risky venture, and there's a decent chance they won't succeed; after all, if it was a "sure thing" there'd have been a lot more bidders in that auction. Thing is, though, that a private equity firm has a much longer time horizon than other owners; they don't have to make quarterly numbers and can accept a short-term loss in order to book a long-term profit. Fortress has much deeper pockets than RailWorld and can afford to throw money at the infrastructure etc. Call me "cautiously optimistic" on this one.

Incidentally, I don't think they bought the locomotives; I believe it says farther back in the thread that the locomotives are being sold as a separate lot by the bankruptcy trustee. -R'fld

Parenthetical: This is not financial advice. These are my views as a private citizen/railfan with a knowledge of finance. You should never take financial advice from anonymous people on the internet.

[CN9634]

But it should be evident I am not the only skeptic around here with the Fortress' acquisition (subject to Trustee and Court approval) of MM&A's rail assets. I have to wonder just how sincere they are about revitalizing a property comprised of bunch of third hand locomotives, Class III track at best, a declining on-line industrial base, and no assurance that the overhead (bridge; intermediate) traffic mainly comprising crude oil will ever return. Have they in mind to 'flip' the properties back to some public agency (I still think that is what they are up to with the FEC), or have they have some 'Genie in the bottle' to make those properties into a going concern transportation system providing economic value to the region?

Signed; 'Curious'

Mr. Norman: I think it's a very risky venture, and there's a decent chance they won't succeed; after all, if it was a "sure thing" there'd have been a lot more bidders in that auction. Thing is, though, that a private equity firm has a much longer time horizon than other owners; they don't have to make quarterly numbers and can accept a short-term loss in order to book a long-term profit. Fortress has much deeper pockets than RailWorld and can afford to throw money at the infrastructure etc. Call me "cautiously optimistic" on this one.

Incidentally, I don't think they bought the locomotives; I believe it says farther back in the thread that the locomotives are being sold as a separate lot by the bankruptcy trustee. -R'fld


Parenthetical: This is not financial advice. These are my views as a private citizen/railfan with a knowledge of finance. You should never take financial advice from anonymous people on the internet.

What years did you do your financials for or were you forecasting?

I got an EBITDA of $200M using the operating revenues figure on page 5. The EBIT was $43M. My NWC came out to $13M. Current ratio was 1.41 and the capital structure was 20% equity, 80% debt.

What is interesting is during this year, they were seperating the railroad into a seperate subsidiary (no clue what it was in before) so they were playing around with debt a bit. This made the fin statements look a bit wonky for this year, primarily because their interest was very much off. However, they didn't indicate where they assumed debt from... and my assumption was that it came from Fortress so it really was just moving money around between assets in the umbrella. (One wonders about tax shields in this instance)

It would be nice to have the last 25 years of statements lined up together to see how things changed after Fortress ownership, but I don't think the statements from these years (2010, 2009) are indicative of how the railroad up here will operate. You could definitely compare this to other railroads and I did... just common size the balance sheet.

[fogg1703]

Class III track at best, a declining on-line industrial base, and no assurance that the overhead (bridge; intermediate) traffic mainly comprising crude oil will ever return

Whats wrong with Class III track? Why waste money to bring track speeds higher than 40MPH? They are not running any passenger service. The roadbed is in far better shape than 50% of PAR's Maine trackage for sure. The entire Moosehead is CWR with new rail being installed as late as two summers ago in the Eastern Townships, Searsport branch doesn't need to be any faster than a Class II branch with the predominantly Haz Mat loads on that line. The worst of the existing MMA trackage was the Aroostook lines which is not Fortress's issue so with a good season of maintenance and a lot of money, the infrastructure is in really good shape.

In regards to your skepticism about overhead traffic, I completely agree. However as I stated previously, IF I was Fortress I would be talking directly to CSX (relationship may be better than PAR/CSX with their FEC negotiations) and go after PAR's current SJPO/POSJ traffic destined for eastern seaboard through the Adirondack Jct gateway. Is there a lot of obstables, absolutely (CP, Kahnawaki Nation) but a healthy 40-50 cars/day that PAR is giving CSX could easily be run over the Moosehead, cutting transit times due to the almost double track speeds. PAR is the middle man between NBSR and CSX and could easily be taken out of the equation for the Fortress line, if the pencil is sharp. Food for thought.

[gokeefe]

All the more reason for PAR to get serious (and soon...) about their trackwork programs in Maine.

Perhaps competition, or even the specter of it, from a serious owner might be the best thing that has ever happened to them.

[CN9634]

Class III track at best, a declining on-line industrial base, and no assurance that the overhead (bridge; intermediate) traffic mainly comprising crude oil will ever return

Whats wrong with Class III track? Why waste money to bring track speeds higher than 40MPH? They are not running any passenger service. The roadbed is in far better shape than 50% of PAR's Maine trackage for sure. The entire Moosehead is CWR with new rail being installed as late as two summers ago in the Eastern Townships, Searsport branch doesn't need to be any faster than a Class II branch with the predominantly Haz Mat loads on that line. The worst of the existing MMA trackage was the Aroostook lines which is not Fortress's issue so with a good season of maintenance and a lot of money, the infrastructure is in really good shape.

In regards to your skepticism about overhead traffic, I completely agree. However as I stated previously, IF I was Fortress I would be talking directly to CSX (relationship may be better than PAR/CSX with their FEC negotiations) and go after PAR's current SJPO/POSJ traffic destined for eastern seaboard through the Adirondack Jct gateway. Is there a lot of obstables, absolutely (CP, Kahnawaki Nation) but a healthy 40-50 cars/day that PAR is giving CSX could easily be run over the Moosehead, cutting transit times due to the almost double track speeds. PAR is the middle man between NBSR and CSX and could easily be taken out of the equation for the Fortress line, if the pencil is sharp. Food for thought.

The entire Moosehead is not CWR but most of the headless rail is gone from CP days. 115LB jointed rail dating to 1999 is in some spots with CWR mixed in some places. The big problem is the Canadian trackage with lots of 10MPH. Switches are a big problem too. Big thing is clearances on the Moosehead are good. Also, the rail greasers and some of the detectors haven't seen use in years but could be resurrected. Lots of grades and curves on the Moosehead.

[fogg1703]

I was under the impression that CWR was laid when the super elevated curves were removed. Thanks for clarifying. Again doesn't seem to be anything too insurmountable for a professional MOW outfit to get up and running in a solid season of work.

[Gilbert B Norman]

OK volks, where is this physical interchange with CSX?

This map would suggest there is none:

http://www.mmarail.com/downloads/mma_rail_map.pdf" onclick="window.open(this.href);return false;

This topic also suggests there is none ('talk the talk' yes):

http://www.railroad.net/forums/viewtopi ... 47&t=41002" onclick="window.open(this.href);return false;

If there were such through Adirondack Jct to the NYC Adirondack Division line thence to Utica and the Water Level Route, this could represent a competitive routing to Norfolk Southern and 'barroom buddy' Boston & Maine.

I'm at a loss - and this enquiring mind wants to know.

Anyone?

[fogg1703]

OK volks, where is this physical interchange with CSX?

This map would suggest there is none:

http://www.mmarail.com/downloads/mma_rail_map.pdf" onclick="window.open(this.href);return false;

This topic also suggests there is none ('talk the talk' yes):

viewtopic.php?f=47&t=41002

If there were such through Adirondack Jct to the NYC Adirondack Division line thence to Utica and the Water Level Route, this could represent a competitive routing to Norfolk Southern and 'barroom buddy' Boston & Maine.

I'm at a loss - and this enquiring mind wants to know.

Anyone?

Currently there is no connection. The wye at Adirondack Jct (CP) has been pulled up and the remaining line across the Kahnawake Nation is dormant not abandoned to Beauharnois. CSX I believe owns the line Salaberry-de-Valleyfield QC to Adirondack Jct as they purchased it from CN in 1993 in order to service the large industrial park (PPG plant) in Beauharnois. MMA was interested in purchasing the CSX trackage as far south as Massena possibly, however did not happen for reasons unknown to me. As you state Mr Norman, this would be an end-around of PAR for maritime traffic destined for CSX. My question is could Fortress revisit this idea MMA had and possibly persuade the Kahnawake Indians and CP to open a new route for interchange directly to CSX. Its possible it would never happen as the Indian reservation would not allow the railroad to be rebuilt on soverign land, and CP might block any such a notion as its traffic they are losing as well. CSX may not be interested either as it would require more crews in Quebec as opposed to a more readily available crew pool on the Boston Line. Just an old topic revisited for discussion with a new owner.

[CPF363]

Why the hell would CN be willing to do such a thing?

From the What's next for MMA? Topic, Page 18, Fri Oct 11, 2013 1:53 am:

Not all are railroads. Some are financial holding companies. IE another Iron roads. CN I would not rule out for a second. Given the Four large trestles in NB that will need major work in the next twenty years, CN is looking for a LONG-TERM solution. If they get MMA and eventually, NBSR, they would eliminate huge operating costs to Halifax via Saint John and Moncton. Moncton to QC is a huge bridge line they want to get rid of.

If CN was successful in acquiring the MM&A, you are suggesting they would look to route their Maritime Provinces bound freight across Maine verses using their other two owned lines into New Brunswick to the point of looking even to close their Moncton to QC huge bridge line. Which of the two is CN looking to get rid of; St. André Jct. to Moncton via Saint-Leonard, or the Intercolonial Railway line via Matapédia? I should have suggested Fortress and NBSR offer some kind of a haulage agreement with CN to haul their cars between Montreal and Saint John on a shorter, more direct route across Maine verses going around Maine on the longer routes through Moncton.

[CN9634]

Why the hell would CN be willing to do such a thing?

From the What's next for MMA? Topic, Page 18, Fri Oct 11, 2013 1:53 am:

Not all are railroads. Some are financial holding companies. IE another Iron roads. CN I would not rule out for a second. Given the Four large trestles in NB that will need major work in the next twenty years, CN is looking for a LONG-TERM solution. If they get MMA and eventually, NBSR, they would eliminate huge operating costs to Halifax via Saint John and Moncton. Moncton to QC is a huge bridge line they want to get rid of.

If CN was successful in acquiring the MM&A, you are suggesting they would look to route their Maritime Provinces bound freight across Maine verses using their other two owned lines into New Brunswick to the point of looking even to close their Moncton to QC huge bridge line. Which of the two is CN looking to get rid of; St. André Jct. to Moncton via Saint-Leonard, or the Intercolonial Railway line via Matapédia? I should have suggested Fortress and NBSR offer some kind of a haulage agreement with CN to haul their cars between Montreal and Saint John on a shorter, more direct route across Maine verses going around Maine on the longer routes through Moncton.

Well they are officially divesting themselves of a critical section of the line between Moncton and Campbelton, so they really will have only one line. When the next derailments happens on CN, they will have to use the Fortress-NBSR line, or sit on their thumbs a few days while they repair the line (Which most likely won't be the case). I'm just saying, the cost of fixing those large trestles compared to picking up the former MMA line, with some sort of agree in place with NBS may have been worth looking at. The former-MMA line does have some nice long sidings, but a CTC/ABS system would have to be reinstated in the line and that wouldn't be cheap.

It will be interesting to see what happens with CN in the future with only one line around Maine and a steady number of derailments of their super trains. I would risk a opinion, that the CN DPU trains reaching lengths of 14K 15K is of similar mindset to the MMA operating one man crews.... reduce operating costs per train over a long, geographically intense, bridge line. Should Fortress pursue the oil traffic, or find a way to make 100+ car trains, they should consider the DPU option. After all, this is the reason why the MMA didn't run loaded oil trains over 80 cars.

Also, the reason I went after your statement (no offense) was that you implied CN would willingly give up traffic to a competitor. I honestly can't see any reason why CN would consider such an action unless they benefitted incredibly.

[CPF363]

Well they are officially divesting themselves of a critical section of the line between Moncton and Campbelton, so they really will have only one line. When the next derailments happens on CN, they will have to use the Fortress-NBSR line, or sit on their thumbs a few days while they repair the line (Which most likely won't be the case). I'm just saying, the cost of fixing those large trestles compared to picking up the former MMA line, with some sort of agree in place with NBS may have been worth looking at. The former-MMA line does have some nice long sidings, but a CTC/ABS system would have to be reinstated in the line and that wouldn't be cheap.

Are the large trestles on the Moncton to Campbelton route?

Also, the reason I went after your statement (no offense) was that you implied CN would willingly give up traffic to a competitor. I honestly can't see any reason why CN would consider such an action unless they benefitted incredibly.

I was just suggesting whether a haulage agreement for Saint John would be beneficial to CN. They would have to make the rate was worth while to them. Guilford in 1990 decided to work a haulage agreement with Conrail through Worcester verses running the run to Rotterdam with their own crews.

The entire Moosehead is not CWR but most of the headless rail is gone from CP days. 115LB jointed rail dating to 1999 is in some spots with CWR mixed in some places. The big problem is the Canadian trackage with lots of 10MPH. Switches are a big problem too. Big thing is clearances on the Moosehead are good. Also, the rail greasers and some of the detectors haven't seen use in years but could be resurrected. Lots of grades and curves on the Moosehead.

Is the headless rail from the CP days have the "V" shaped head?

[CN9634]

Well they are officially divesting themselves of a critical section of the line between Moncton and Campbelton, so they really will have only one line. When the next derailments happens on CN, they will have to use the Fortress-NBSR line, or sit on their thumbs a few days while they repair the line (Which most likely won't be the case). I'm just saying, the cost of fixing those large trestles compared to picking up the former MMA line, with some sort of agree in place with NBS may have been worth looking at. The former-MMA line does have some nice long sidings, but a CTC/ABS system would have to be reinstated in the line and that wouldn't be cheap.

Are the large trestles on the Moncton to Campbelton route?

Also, the reason I went after your statement (no offense) was that you implied CN would willingly give up traffic to a competitor. I honestly can't see any reason why CN would consider such an action unless they benefitted incredibly.

I was just suggesting whether a haulage agreement for Saint John would be beneficial to CN. They would have to make the rate was worth while to them. Guilford in 1990 decided to work a haulage agreement with Conrail through Worcester verses running the run to Rotterdam with their own crews.

The entire Moosehead is not CWR but most of the headless rail is gone from CP days. 115LB jointed rail dating to 1999 is in some spots with CWR mixed in some places. The big problem is the Canadian trackage with lots of 10MPH. Switches are a big problem too. Big thing is clearances on the Moosehead are good. Also, the rail greasers and some of the detectors haven't seen use in years but could be resurrected. Lots of grades and curves on the Moosehead.

Is the headless rail from the CP days have the "V" shaped head?

The trestles are located on the southern line and the biggest can be seen here on Steve Boyko's blog, http://blog.traingeek.ca/2007/12/bridge ... ounty.html" onclick="window.open(this.href);return false;