January 22

New York group emerges as buyer of bankrupt Maine railroad

Two courts will make the final ruling Thursday on the acquisition of MM&A Railway, which went bankrupt after a tragic derailment in Quebec.

By Jessica Hall jhall@pressherald.com
Staff Writer

The New York-based Fortress Investment Group emerged as the winner of Tuesday’s auction of the bankrupt Montreal, Maine & Atlantic Railway, whose train derailment July 6 in Lac-Megantic, Quebec, caused an explosion and fire that killed 47 people.

click image to enlarge

A crew from Montreal, Maine & Atlantic Railway repairs tracks in Brownville in July. The railway was auctioned Tuesday.

2013 Press Herald file photo

Although the results were not officially disclosed, several people who attended the closed-door, 40-minute auction identified Fortress Investment Group as the winning bidder. Its ownership of the railroad is subject to a final judgment, scheduled for Thursday in U.S. District Court in Bangor and the Superior Court of Quebec in Sherbrook. The courts will hold simultaneous proceedings starting at 10 a.m.

Fortress Investment Group bid on the entire company, which operates on more than 500 miles of tracks in Quebec, Maine and a small section of Vermont, according to attendees.

An official with J.D. Irving Ltd. said its Eastern Maine Railway Co. unit had partnered with Springfield Terminal Railway Co. to bid for only the Maine portions of the railroad.

“In the end, the trustee went forward with a single buyer of the entire MMA railway line (Maine, Quebec and Vermont track). We look forward to working with Fortress Investment Group of New York as they assume operation of the MMA railway,” Wayne Power, vice president of J.D. Irving’s transportation and logistics division, said in a prepared statement.

Fortress Investment Group did not return calls seeking comment.

Vermont Rail System President David Wulfson said, “We are happy for Fortress and look forward to working with them. They are an experienced railroad operator.”

Chief Judge Louis Kornreich of the U.S. Bankruptcy Court in Bangor chose Fortress Investment Group last month as the “stalking horse” bidder for the Montreal, Maine & Atlantic Railway, meaning its initial $14.25 million bid set a minimum price for the railroad.

Robert Keach, the railroad’s court-appointed trustee, said last month that as many as 18 companies had expressed initial interest in the railroad. It was unclear Tuesday how many submitted final offers. The terms of Fortress Investment Group’s winning bid were not immediately available.

Under federal law, the highest bid would not necessarily be the winning bid. Railroads are monopolies and considered critical to commerce, so the bankruptcy trustee must consider the “public interest” in maintaining a railroad as an ongoing business.

Chop Hardenbergh, who edits the newsletter Atlantic Northeast Rails & Ports, said that after the auction – held in the Portland offices of Keach’s law firm, Bernstein Shur – John Giles, a representative for Fortress Investment Group, told him, “We’re back in the railroad business.”

Fortress Investment Group previously owned RailAmerica, a short-line and regional freight railroad, until it was acquired by Genesee & Wyoming in October 2012. It more than doubled its initial investment between RailAmerica’s initial public offering and its sale.

Tuesday’s auction was private, attended by representatives of the bidders, a court-appointed monitor of the railway’s Canadian affiliate, the Montreal, Maine & Atlantic Canada Co., and a court-appointed bankruptcy specialist who represented a committee of victims of the derailment in U.S. court proceedings.

Also at the auction were Rob Elder, director of freight and business services for the Maine Department of Transportation, and Nathan Moulton, rail director for the MDOT, who represented the public interests of Maine.

Elder, saying the trustee had asked the auction’s attendees not to talk to the media, declined to comment.

The Hermon-based Montreal, Maine & Atlantic Railway was driven into bankruptcy by the disaster in Lac-Megantic. It has sought protection from creditors in courts in the U.S. and Canada. The railroad has continued to operate during the bankruptcy proceeding, running trains between Millinocket and Searsport, and between Brownville and Montreal.

Earlier this month, an empty cargo train owned by the railway derailed in Nantes, near Lac-Megantic, according to a report in the Canadian Press on Monday.

In the report, which listed no injuries, Nantes Mayor Jacques Breton said the railway did not report the derailment to town officials even though one of the derailed locomotives ended up next to one of the town’s main roads.

Jessica Hall can be contacted at 791-6316 or at:

jhall@pressherald.com

Twitter: @JessicaHallPPH

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