The bankrupt Montreal, Maine & Atlantic Railway has only one customer on the 117-mile stretch of rail between Lac-Megantic, Quebec, and Brownville Junction: Moose River Lumber, outside Jackman.

Steve Banahan, Moose River Lumber’s transportation manager, is paying close attention as the bankruptcy trustee tries to sell the railroad. He needs that line to stay open so he can ship lumber to customers in Montreal and points west. “This is a big concern of ours,” he said, because a new owner could abandon that section of the railroad and sell the rails for scrap.

Fortress Investment Group, a New York City-based investment firm that’s managing about $58 billion in assets, may be the kind of bidder Banahan fears. The firm’s $14.25 million bid is the only offer for the troubled Montreal, Maine & Atlantic to date, which means it will own the railroad if no other bidder steps up by the Jan. 17 deadline.

The railroad sought bankruptcy protection a month after a runaway freight train hauling crude oil on its line rolled into Lac-Megantic on July 6 and exploded, killing 47 people and destroying 40 buildings downtown.

Robert Keach, the railroad’s court-appointed trustee, confirmed that Fortress Investment Group was chosen as the “stalking horse” bidder, setting a minimum price to prevent low-ball bids from other buyers.

As stalking horse bidder, the firm could earn money from fees even if it does not end up buying the Montreal, Maine & Atlantic. To such a buyer, industry observers said, the Hermon-based short-line rail company may be more valuable if its rail network is broken up and sold off in pieces than if it is kept intact and operated in its current configuration.

Fortress Investment Group is “in the investment business, not the railroad business per se,” said Don Marson, who retired in June as vice president and general manager of the Maine Eastern Railroad, which operates freight trains and summer excursion trains between Brunswick and Rockland.

In 2007, the firm made a major foray into the railroad business when it bought RailAmerica, one of North America’s largest operators of short-line and regional freight railroads. It took the company public in 2009; three years later, RailAmerica was sold to Genesee & Wyoming Inc.

Its strategy has been to buy an asset, add value and then “flip it” to another investor or take the company public, Marson said. “They’ll sell it and divest of it in bits and pieces,” he said.

Fortress Investment Group does operate one of the former RailAmerica lines: Florida East Coast Railway, a regional freight railroad that runs along the east coast of Florida between Jacksonville and Miami.


The Montreal, Maine & Atlantic, a relatively small company, owns 512 miles of rail. It operates in Maine and Quebec and serves customers in Vermont just south of the Quebec border.

The fate of its assets will affect not only railroad workers, but also companies like Moose River Lumber, which use the railroad to deliver products and receive raw materials.

Marson said the line between Brownville Junction and Lac-Megantic, known as the Moosehead Subdivision, is unlikely to survive under new ownership because it’s too expensive to maintain for just one customer. He also questioned whether any buyer would keep the railroad’s Derby Shops, a train repair facility in Milo that was once the second-largest in New England.

George Betke of Damariscotta, who has an ownership stake in three short-line railroads in Oklahoma and New York, would not speculate on why Fortress Investment Group would want a Maine-based railroad.

He said the closure of mills in northern Maine will make it a challenge for any railroad to be profitable. The Montreal, Maine & Atlantic had shown some success and had begun making investments in the rail before the accident in Lac-Megantic, he said.

Since the accident, Betke said, the railroad’s value has been reduced by political developments such as the banning of one-man crews in Canada, the introduction of legislation to do the same in the United States, and resistance in Lac-Megantic to allowing oil shipments through the town.

To keep the railroad intact, a buyer will need a low price because there isn’t enough business to support a high price, he said.

Betke is also pessimistic about the survival of the Moosehead Subdivision. “It becomes a nuisance to maintain for what little revenue you get,” he said.


Keach, the bankruptcy trustee, said 18 companies have expressed interest in bidding on the railroad, and all of them, including Fortress Investment Group, have expressed a desire to operate it rather than sell its assets.

Keach is conducting two auctions at once; in one, he is taking bids for the Montreal, Maine & Atlantic as an entire entity. He is also soliciting bids for pieces of the railroad. How it is sold will depend on how the auction plays out. Fortress Investment Group’s bid is for the entire railroad.

Keach said he believes that the railroad may realize its greatest value if it is sold intact, and that the Moosehead Subdivision is a critical asset because it connects Maine customers with Montreal.

Bankrupt railroads have unique status under federal law, because railroads are monopolies and are considered critical to commerce. Keach said trustees must consider the “public interest” in maintaining a railroad as an ongoing business.

Although Fortress Investment Group’s offer sets a minimum price, Keach said, he is allowed to accept a lower bid if he believes that the prospective buyer is more capable of running a successful railroad.

Meanwhile, at Moose River Lumber, Banahan is hopeful that whoever buys the railroad will keep trains running between Maine and Quebec.

“It’s the most valuable part of the whole thing,” he said. “It’s a major east-west line.”

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

[email protected]

Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.