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OWLS HEAD – Bangor and Aroostook System likely will be sold intact by the end of the summer to the same Chicago firm that offered to buy it in December. But the selling price is lower now than Rail World Inc.’s $62 million bid made more than five months ago.
Negotiations to buy B&A System are going on behind the scenes of U.S. Bankruptcy Court proceedings, which are under way for one of the rail lines in the system, Bangor and Aroostook Railroad.
The railroad involuntarily was declared bankrupt by a federal judge in December at the request of three creditors who collectively are owed more than $7 million.
On Saturday, the trustee overseeing B&A Railroad’s operations during bankruptcy spoke publicly for the first time outside of a courtroom setting about his plans for the bankrupt railroad and the other lines in the system.
James Howard, a Massachusetts attorney who was appointed trustee about three months ago, said it’s his desire to sell not only the railroad but the entire system intact – and quickly. The likely buyer, he said, would be Rail World Inc., which in October signed a letter of intent to purchase B&A System for $62 million in cash. The Wheeling Corp., based in Ohio, and other investors joined Rail World in that offer.
“That’s our goal, to sell the entire system rather than to enter into different agreements and break it up,” said Howard, speaking at the 13th annual meeting of the MRG Inc.-DownEast Rail group at Owls Head Transportation Museum. MRG Inc.-DownEast Rail is a nonprofit group that works to enhance rail service in Maine.
What Rail World is willing to pay for the rail system now is lower than what it offered seven months ago because the system is losing money, Howard said. But he would not disclose the sales price.
“The price is not as high as the $62 million,” Howard said. “I obviously don’t want to get into specific price … but it’s in the same ballpark.”
A few of the companies that use the system’s rail lines are unsure of its future and are seeking other ways to get their products shipped to markets, Howard said. Those companies include Irving Corp., which signed an agreement with Canadian National to ship most of its freight on rails in Canada instead of through Maine, he said.
Frederic Yocum Jr., president of B&A System, confirmed Saturday that the rail line “has lost most of the competitive business” from Irving and other companies.
Once the sales agreement is signed, the terms of the deal will be presented to U.S. Bankruptcy Court Chief Judge James Haines Jr. in Portland. Because B&A Railroad is in bankruptcy, Haines likely will order an auction and allow other interested buyers to bid on it. Rail World’s agreed-upon price will be the starting bid price at the auction.
After the auction is complete, and the sale receives the required federal regulatory approval, the deal should be wrapped up by mid- to late summer, Howard said.
Curtis Kimball, an attorney for one of the three creditors, said Sunday that he isn’t surprised Rail World has dropped its purchase price. The company wants to give itself room to up its offer if B&A Railroad is placed on the auction block, he said, or at least have room to match any higher bid.
“Really at this point it’s speculative,” Kimball said.
State Rep. Charles Fisher, D-Brewer, a member of the state transportation committee, said Saturday he’s anxious for the sale to be completed.
“Every day that the uncertainty lasts, they lose business,” said Fisher, who attended the rail group’s meeting. “Every bit of business that they lose up north makes that section of line less necessary. The railroad’s got a long, proud heritage. It’s been taking a beating because of a lack of decision.”
B&A System and Rail World initially had planned to complete a deal by the end of the year without bankruptcy court supervision.
But on Saturday, Howard acknowledged that Rail World or any other likely buyer of the rail system late last year wanted the protection of a bankruptcy court before proceeding with sales negotiations. B&A Railroad’s debts are about $123 million, according to financial statements, including the balances on property and equipment leases and rentals.
Last fall, months after the creditors filed their request for involuntary bankruptcy placement by a judge, the railroad and the creditors reached an agreement to suspend the pending bankruptcy action.
According to the deal, B&A agreed to have an actual signed sales agreement with Rail World by mid-November and the sale was to be final by Dec. 31.
The sales agreement, though, wasn’t signed by the deadline and the creditors notified the bankruptcy court that B&A did not meet the terms of the deal.
B&A and Rail World then tried again to stop pending bankruptcy from actually taking place, but discussions with the creditors failed and the bankruptcy was ordered in December.
B&A System is owned by Iron Road Railways of Virginia. Besides Bangor and Aroostook Railroad, the system includes Canadian American, Quebec Southern Railway Co. Ltd. and Northern Vermont railroads, as well as Logistics Management Systems.
On Saturday, Howard said he could not discuss terms of the deal with Rail World.
Last year, Rail World was interested in buying the stock of the Quebec Southern Railway, the operating assets of B&A Railroad, the Canadian American Railroad Co., the Van Buren Bridge Co., Logistics Management Systems Inc., the Northern Vermont Railroad Co. Inc. and portions of the Newport & Richford Railroad Co.
Rail World, once it took ownership, planned to eliminate about 120 of the company’s 420 positions and change the system’s name to Montreal, Maine and Atlantic railroad. The name Bangor and Aroostook, which has graced rail cars for more than 100 years, would be gone.
Rail World is a Chicago-based rail management and investment corporation. Edward A. Burkhardt, president and chief executive officer, is the founder and former chairman of Wisconsin Central Transportation Corp.
The Wheeling Corp. owns a 680-mile regional railroad based in Brewster, Ohio, that serves Ohio, West Virginia and Pennsylvania. It is headed by Larry R. Parsons, a 40-year veteran rail manager who occupied senior management positions on the Denver & Rio Grande Western, Southern Pacific, Union Pacific and Kansas City Southern railways.
On Saturday, Howard said the state should be left “with an operating and functioning railroad.”
“I think there’s great optimism,” he said, adding that Burkhardt has a proven track record of buying and selling railroads and has adequate financing to support the transaction.
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