August 21, 2013

Irving emerges as one suitor for Maine railway

By J. Craig Anderson
Staff Writer

Canadian conglomerate J.D. Irving Ltd.'s NB&M Railways has been in discussions with the state about the process of buying the embattled Montreal, Maine & Atlantic Railway. The company said Tuesday it wants to ensure operation of a critical rail link to Irving Oil's New Brunswick refinery and other businesses.

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In this July 31,2 013 file photo, a crew from Montreal, Maine & Atlantic Railway works to put a derailed locomotive back on the tracks in Brownville. Canadian conglomerate J.D. Irving Ltd.'s NB&M Railways has been in discussions with the state about the process of buying the embattled MM&A Railway.

Tom Bell / Staff Writer

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Operation of the railway, which runs from Quebec toward New Brunswick through central Maine, has been in jeopardy since a riderless "ghost train" hauling crude oil rolled into the small Quebec town of Lac-Megantic, derailed and exploded, killing 47 people and destroying 40 buildings in the heart of town.

The company filed for bankruptcy protection about a month after the July 6 derailment.

Mary Keith, vice president of communications for Saint John, New Brunswick-based J.D. Irving, said her company is monitoring the bankruptcy process closely.

"We are certainly very concerned about maintaining rail connections in the state of Maine," she said.

Keith would not comment on whether NB&M will attempt to buy the struggling, Hermon-based Montreal, Maine & Atlantic, saying only, "We are currently reviewing our options."

Still, she said the railroad is "vital to our operations."

As one of the largest creditors in the pending Montreal, Maine & Atlantic Chapter 11 bankruptcy proceedings, NB&M's New Brunswick Southern Railway will have a seat at the negotiating table and a vote on the insolvent railroad company's proposed reorganization plan.

The Irving-owned railroad is not the only potential suitor for Montreal, Maine & Atlantic's assets.

Gov. Paul LePage spokeswoman Adrienne Bennett said the Maine Department of Transportation has had discussions about Montreal, Maine & Atlantic's situation with every major rail operator in the region.

Bennett said LePage's office would not offer an opinion about which operator it would prefer to take over the railroad.

"There's a (legal) process, and we are in that process," she said.

MM&A officials did not immediately return an email requesting comment late Tuesday afternoon.

Chalmers "Chop" Hardenbergh, editor of Freeport-based trade publication Atlantic Northeast Rails & Ports, said it's likely that any bid by NB&M to take over the railroad would get a warm reception from Montreal, Maine & Atlantic's customers.

"Everybody and his brother would be delighted to have Irving run this line," Hardenbergh said.

Lac-Megantic spokesman Nicolas Carette said the town had no comment on the possibility that an Irving-owned company might buy the railroad, saying the matter was now in the hands of the court. Town officials have said they don't want any more crude oil coming through the area by rail.

"However, Lac-Megantic needs a safe and efficient railway to serve our industry, and we hope that a solution will be found quickly," Carette said.

There would be several variables to work out before NB&M would make any kind of purchase offer, Hardenbergh said.

For instance, it's likely that the Irving-owned firm would want the government to actually purchase the railroad and then contract with New Brunswick Southern to operate it, he said.

Another question is whether NB&M would want to take over the entire rail line, or just the 31-mile section from Brownville Junction to Millinocket, which is the critical piece to maintain Irving's operations, Hardenbergh said.

J.D. Irving is a private, family-owned company involved in a variety of industries, including forestry, paper products, agriculture, food processing, transportation and shipbuilding. It has a number of sister companies, including oil and gas provider Irving Oil, newspaper chain Brunswick News and industrial-equipment firm Irving Equipment.

The Montreal, Maine & Atlantic filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Aug. 7, just 33 days after the derailment in Lac-Megantic.

According to documents filed in U.S. Bankruptcy Court for the District of Maine, the railway company is worth $50 million to $100 million and owes about $39 million to its largest creditors.

In all, the company estimated that it has more than 200 unsecured creditors, which are businesses or individuals who are owed money but do not have collateral or legal means to force repayment.

Several lawsuits also have been filed since the accident, including a potential class action by victims and by family members of victims from the town.

Because it operates in two countries, the railroad consists of two companies, the Montreal, Maine & Atlantic Canada Co. in Canada and the Montreal, Maine & Atlantic Railway Ltd. in the United States.

The Canadian company also filed for bankruptcy Aug. 7 under Canadian law in Superior Court of Quebec in Montreal.

Because railroads are critical for commerce and have monopoly status, U.S. bankruptcy law has special rules to ensure they continue to operate and are not liquidated. In fact, railroads are not allowed to file for Chapter 7, which is used when a company closes its business and sells off its assets.

If the railroad ceases operations, the federal Surface Transportation Board has the authority to step in and order another railroad to provide service to the defunct railroad's customers.

Another option would be for the bankruptcy court to place the railroad in receivership, which would involve appointing an independent third party to take over operations until the company emerges from bankruptcy or is sold.

Because of its complex nature, it's likely to be months or even years before the bankruptcy case is resolved.

The next step in the Montreal, Maine & Atlantic bankruptcy case is a hearing scheduled for 2 p.m. Thursday at the U.S. Bankruptcy Court, 537 Congress St., Portland.

This story was updated at 12:54 p.m. on Wednesday, Aug. 21 to change the location of the hearing.

J. Craig Anderson can be contacted at 791-6390 or at:

Twitter: @jcraiganderson


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