August 8, 2013

Disastrous crash forces Maine railway into bankruptcy

The company files Chapter 11 as it seeks a buyer or tries to straighten out its affairs.

By Tom Bell tbell@pressherald.com
Staff Writer

and J. Craig Anderson canderson@pressherald.com
Staff Writer

The Montreal, Maine & Atlantic Railway filed for bankruptcy Wednesday, just 33 days after one of its unattended trains rolled down a hill and derailed, causing explosions that killed 47 people in a town in Quebec.

click image to enlarge

A crew from Montreal, Maine & Atlantic Railway works to put a derailed locomotive back on the tracks in Brownville on Wednesday, July 31, 2013. The Maine-based company filed for bankruptcy Wednesday, Aug. 7, 2013, just 33 days after one of its unattended trains rolled down a hill and derailed, causing explosions that killed 47 people in Lac-Megantic, Quebec.

Tom Bell / Staff Writer

click image to enlarge

Rail World Inc. President Edward Burkhardt speaks to the media as he tours the devastation in Lac-Megantic, Quebec, on July 10, 2013. Rail World is the parent company of the Montreal, Maine & Atlantic Railway.

Related Documents

Montreal, Maine & Atlantic's bankruptcy petition
MMA board of directors' resolution on bankruptcy
Motion by Montreal, Maine & Atlantic

The filing gives the company "breathing space" as it searches for a buyer or works to straighten out its affairs so it can continue operating, said the railroad's attorney, Roger Clement of Verrill Dana in Portland.

He said the Chapter 11 bankruptcy filing also provides a fair process for handling the many claims that have emerged since the accident.

There have been discussions with potential buyers, but nothing has "jelled," Clement said. A decision about selling the railroad may be made over the next few weeks, he said.

According to documents filed Wednesday 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, Lac-Megantic.

The railroad's chairman, Ed Burkhardt, said in a written statement that the company's obligations now exceed the value of its assets, including its expected insurance payouts as a result of the accident.

The bankruptcy filing, he said, is the "best way to ensure fairness of treatment to all in these tragic circumstances."

The railroad owns 512 miles of line and has 54 employees in Maine and 34 employees in Canada. Most of its workers have been laid off since the accident disrupted operations. Its headquarters are in Hermon.

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. Each company has its own board of directors, and Burkhardt is the chairman of both boards.

On Wednesday, the Canadian company filed for bankruptcy under Canadian law in Superior Court of Qu?c in Montreal, while its sister company in Maine filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

Because railroads are critical for commerce and have monopoly status, U.S. bankruptcy law has special rules to ensure that railroads 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 its customers, said Chalmers "Chop" Hardenbergh of Freeport, publisher of Atlantic Northeast Rails & Ports, a trade publication.

Burkhardt said essential rail services will continue at all stations in Qu?c, Maine and Vermont, with the exception of Lac-Megantic itself because the rail yard is under the control of authorities investigating the accident.

Gov. Paul LePage said in a written statement that the Maine Department of Transportation will actively participate in the bankruptcy proceedings, and also in any related regulatory proceedings to protect the rights of shippers to receive service.

Several manufacturers in Maine depend on the railroad to deliver products to customers around the country.

Steve Banahan, sales and transportation manager for Moose River Lumber in Moose River, said he hopes the line will reopen so his company can ship to Montreal.

The company processes spruce fir from Maine and Quebec and turns it into dimension lumber for building houses. It produces about 120 million board feet per year, according to its website.

The company relies on the railroad for bringing logs in as well as shipping lumber out. The lumber is shipped west, passing through Lac-Megantic on its way to Montreal, before being distributed along the eastern seaboard, Banahan said.

With the Lac-Megantic rail yard closed, lumber must travel back east to Brownville Junction, which costs about $500 to $1,500 more per car. In the course of a year, the company ships about 150 to 200 cars, Banahan said.

"We've felt the impact both on the inbound side, with our raw materials, as well as on the outbound side, trying to get our product to other markets," he said.

In a bankruptcy proceeding, secured creditors -- those with collateral for the money they are owed -- are at the front of the line to be repaid by the company. Unsecured creditors often receive a far smaller portion of what they are owed, if anything.

The railroad's largest secured creditor is the federal government, according to bankruptcy documents.

The railroad still owes $27.5 million on a $34 million Federal Railroad Administration loan issued in March 2005, the documents said. The railroad administration would have the legal right to take possession of all real estate owned by the company if it defaulted on the loan, according to the court motion filed by the railroad.

The company's second-largest secured creditor is Wheeling & Lake Erie Railway Co., which is owed $6 million on a maxed-out line of credit.

The railroad's largest unsecured creditor is New Brunswick Southern Railway Company Ltd., which claims it is owed $2 million. Montreal, Maine & Atlantic is disputing that debt, court documents show.

The debt to New Brunswick Southern is likely for its services as a "switching carrier," which delivers the Montreal, Maine & Atlantic cars to and from the Irving Oil refinery in New Brunswick, said Hardenbergh, the Freeport publisher.

The second-largest unsecured creditor is Burkhardt, who is owed about $786,000 for "indemnification and/or contribution in connection with wrongful death litigation and other claims," a likely reference to what Burkhardt has paid out of his own pocket in wrongful-death lawsuits filed by residents of Lac-Megantic.

-- Rachel Ohm of the Morning Sentinel contributed to this report.

Tom Bell can be contacted at 791-6369 or at:

tbell@mainetoday.com

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