Working in collaboration with our clients and their advisors,
Strategic Rail Finance creates breakthrough results. Here
are several case stories for your review.
Iowa Northern Railway Company
As
North America looks to the Corn Belt for alternative fuel
sources, Iowa Northern found itself positioned for growth by
serving the burgeoning energy industry. But without a
transformation in capital access, IANR’s management knew these
opportunities could be missed.
Iowa Northern’s Challenge:
Though profitable, typical bank balance sheet evaluations did
little to provide the level of funding that the new
opportunities would require. Even successful executives can
have difficulty developing a comprehensive funding strategy when
multiple lenders need to be involved, especially when dealing
with banks not conversant in their particular industry. In the
case of IANR, as often happens with railroads, the financial
statements did not represent the actual stability and collateral
value of the company. Also, their financials failed to convey
the railroad’s current profitability and growing place in the
regional economy.
Project: Step into the role of consulting CFO to oversee
the transition from long-term bootstrap funding to full
capitalization for rapid growth.
Results of
Strategic Rail Finance’s work:
Strategic Rail Finance rose to the challenge of supporting Dan
Sabin, a brilliant rail marketer and operator, with all the
capital he could effectively utilize. FRA's Rail Rehabilitation
and Improvement Financing (RRIF) loans can create a long term
drag on business growth as they are typically structured.
Strategic Rail Finance structured an innovative RRIF loan,
integrating it with multiple private sector credit facilities to
expand access to capital for years to come. Additionally, as in
almost all engagements, Strategic Rail Finance created client
savings and unexpected revenues to more than cover all
engagement fees. Some of the accomplishments of this productive
relationship were:
Ø
Closed $25,520,000 RRIF loan
–
largest Class III loan in the history of this FRA program
Ø
Secured additional $1,500,000
in financing from local bank relationship
Ø
Arranged $2,750,000
in new equipment financing
Ø
Positioned enterprise for $17,000,000
in investment capital
Ø
Negotiated $700,000
in savings from previous lenders,
debtors and vendors
Ø
Saved $197,000
thru innovative agreement with track
contractor
Bottom Line − as enjoyed by many of the
powerful 19th century rail developers, this modern
day railroad leader is now empowered with significant access to
growth capital.
RailStar Corporation
In
some cases, years of successful business operations and
acquisitions can create a far-ranging enterprise that no longer
provides the owners with the right combination of benefits and
opportunities from their hard work and investment.
Project: Assist
this tourist rail operator in selling non-related businesses and
assets to focus resources on growing the Georgetown Loop
Railroad and acquiring other tourist rail properties.
RailStar’s Challenge:
At this businessman’s stage of life, he and his wife desire and
deserve to enjoy their work activities as well as their
profits. Resuscitating the Belfast & Moosehead Lake Railroad,
while managing their long-standing propane delivery company, two
marinas, Erie Canal Cruise Lines, Erie Canal Village and
numerous other real estate properties was not adding up to an
enjoyable combination. The Belfast & Moosehead Lake operation
was siphoning off capital from the other entities and the
purchase contract included an impending, overvalued balloon
payment of $950,000. The profitable propane delivery business
was proving to be a challenge to sell at the right price.
Various efforts needed to be mounted all at once in a
comprehensive manner.
Results of
Strategic Rail Finance’s work: SRF established a
detailed accounting of all revenues, costs, and assets generated
and utilized in the entire operation. With this new clarity, we
were able to determine a course of action for each component
business. Miracles can happen when one is empowered by
financial clarity. We settled the Belfast & Moosehead Lake
contract for $15,000, rather than $950,000 (yes, you read that
correctly!) SRF assumed the floundering sales process of the
propane business from the previous business broker and
coordinated a sale to a new buyer for $500,000 more. RailStar
successfully began operating the Georgetown Loop Railroad and
the Inland Lakes Railway. Some of the financial highlights of
this engagement were:
Ø
Saved $935,000
in settlement with previous Belfast & Moosehead Lake
owners
Ø Added
$500,000
to sale price of clients’ business
Ø Saved
$200,000
in taxes thru innovative approach to business sale
Ø Collected
$100,000
in overdue accounts receivables
Ø Negotiated
$200,000
in repayment from long-term debtor
Bottom Line − thanks to the clients’ trusting partnership with
SRF, we were able to provide the clarity and focus needed to
forward his business and life goals.
Iowa Pacific
Holdings, LLC
Railroad
companies often rise and fall on the strength of the national
economy. In this case, excellent management could not make
up for the post-911 economic turndown, leaving the company in
need of a turnaround.
Project: 1)
Stabilize railroad holding company after early start-up
difficulties, and 2) orchestrate strategy for next-stage growth
financing.
Iowa Pacific’s Challenge:
In January of 2004, IPH management was concerned
that early start-up losses, along with extended accounts payable
would restrict operations and limit their ability to finance
future growth. Vendor relations were wearing thin, with
realistic projections and promises difficult to make with
certainty. In times such as these, business people often
have an intuitive sense that they can make it work. The
challenge is finding a rock-bottom foundation for moving forward
and then regaining lenders’ confidence. Strategic Rail
Finance was engaged to
coordinate managements’ efforts to stabilize and refinance the
entire operation.
Results of
Strategic Rail Finance’s work: SRF evaluated all company
assets, operations, expenses, revenues, cash flows, and creditor
agreements. We then invented an accounting program that
facilitates up-to-the-minute management of all aspects of the
financial life of the company. This accounting tool
allowed company president, Ed Ellis, to calmly focus on business
development. Together, we developed a plan for new
financing. Some of the accomplishments facilitated under
the engagement were:
Ø
Identified $360,000
in annual overhead expense savings
Ø
Facilitated $2,000,000
in new business development
Ø
Refinanced $2,500,000
of existing debt
Ø
Secured $8,100,000
in new financing for two rail line acquisitions
Bottom Line − Reconnected to their assets and
strengths, our client moved forward with new confidence and
capital.
Laurinburg & Southern Railroad
Strategic
Rail Finance
has taken on the most challenging situations in the railroad
industry. Here’s what we did for the Evans Family, fourth
generation owners of the Laurinburg & Southern Railroad in North
Carolina.
Project: Refinance
operation to save a $5.5 million Net Loss Carry Forward Tax
Credit before expiration in 90 days.
Laurinburg &
Southern’s Challenge:
In May of 1998,
after decades of business development, the Evans’ faced the
imminent expiration of $5.5 million in tax credits. SRF
was engaged to finance a part of the client’s solution−the
reopening of a vegetable oil processing plant. The
railroad and the plant were two elements of a complex set of
assets that included the railroad, 6,000 acres of farm and
timberland, 130 railcars, and 19 locomotives.
Results of
Strategic Rail Finance’s work: We implemented a unique
strategy, coordinating negotiations with existing
creditors and advising on the sale of the railroad. Some
of the accomplishments were:
Ø
Adding $1,000,000
to sale price of railroad by clarifying undervalued rail assets
Ø
Saving $1,600,000
in a satisfactory settlement with existing creditors
Ø
Averting $5,000,000
in new debt, previously considered unavoidable
Ø
Saving $5,500,000
in tax credits through the creation of a breakthrough financial
and business strategy within 24 days of start of engagement just
in time to utilize recently
enacted STB fast-tracking of smaller
railroad transactions
Bottom Line −
Millions of dollars in tax savings and higher asset sales were
created by
Strategic Rail Finance’s
multi-faceted approach to industry complexities.
Progressive Rail, Inc.
A
2-mile industrial park switching operation in the hands of the
right operator and new sources of capital can be a formula for
significant growth.
Project:
Arrange financing for $3,500,000 rail-to-truck transload
facility.
Progressive
Rail’s Challenge:
After nine
months of presenting his operation to every conceivable lender,
owner Dave Fellon was hemmed in by the peculiar limitations of
railroad financing. Neither his bank, nor any other bank,
would finance his next growth project—a 21-acre, 50,000-sq. ft.,
$3.5mm, transload facility. Of course, Dave’s current bank
held title to all corporate assets as part of previous financing
and was unwilling to extend its very “safe” collateral position.
Results of
Strategic Rail Finance’s work: SRF formulated a unique
strategy which coordinated new financing with a
reengineering of existing debt, credit lines, and collateral
assignments. Some of the accomplishments were:
Ø
130% financing
Ø
Coordinated $2,500,000,
20-year financing at prime+¾%
Ø
Arranged $500,000,
1.77%, 10-year state government loan
Ø
Secured $685,000
additional credit facility on existing assets
Ø
Established $750,000
equipment purchase line of credit
Ø
Negotiated $200,000
cash contribution from connecting Class I carrier
Ø
Released cash, inventory, and receivables from
all collateral assignments
Bottom Line − Strategic Rail
Finance brought $4,600,000 to a 2-mile industrial park switching
railroad.
Bangor & Aroostock
Railroad
Project:
Maximize the value and sale price of owned property and crossing
agreements over their 850-mile, U.S. & Canadian operation.
Bangor & Aroostock’s Challenge:
In 2001, after decades of managing a large
portfolio of property and crossing agreements, records had grown
to several thousand line items of questionable accuracy.
The character and quality of these assets were unknown and a
clear presentation was non-existent. These assets were
therefore “off the table” in negotiations for the railroad.
Results of
Strategic Rail Finance’s work: Strategic Rail Finance
evaluated every agreement in the railroad’s portfolio and
reduced a list of 3000 line items down to an accurate 1104 line
items. This new accuracy resulted in:
Ø
Renewed appreciation
for the long-term development value of the land
adjoining rail line
Ø
Identification of ready-at-hand buyers
of the long-term revenue stream
Ø
Clarification of legal and practical issues
for closing an asset sale
Ø
Pinpointing the buyer
of the railroad as the entity with the most to
gain from land ownership
Ø
Land assets
included in sale at a high multiple
Bottom Line −
Strategic Rail Finance
clarified assets that became additional transaction equity
Washington State Department of Transportation
Our federal, state, and local governments are
taking more responsibility for expanding rail infrastructure.
As a result, they need experienced advice. Here’s
what we did for Washington State Department of
Transportation.
Project:
Evaluate the financial and operational characteristics of 400
miles of Class III rail line in Eastern Washington to support
the state’s possible investment in track ownership and
subsequent track upgrade.
Washington State DOT’s Challenge:
WSDOT and the state legislature needed to access
specialized knowledge to understand rail industry economics.
Results of
Strategic Rail Finance’s work: SRF reconfigured complex
management and bookkeeping elements into a useful set of data
and analytical tools. These developments are allowing
WSDOT and others to understand and assess all aspects of this
rail operation. These tools included:
Ø
Innovative point-to-point traffic flow charts
invaluable for track abandonment and
track improvement decision-making
Ø
Line segment revenue and operating expense tables
that clarified and expanded important details of
the short line’s presentation
Ø
Confirmation of the rail operator’s professional
and responsible stewardship
of
this corner of the state’s transportation
infrastructure
Ø
Specific recommendations for
a proactive collaboration of public and
private sector entities for growing this railroad and improving
the community
Bottom Line
−
This important transaction between a private-sector railway and
a state government can now move forward with clarity
Ø
See Reference Letter from WSDOT
Carload Express, Inc.
Russell
Peterson, owner of Carload Express Inc., of Scottdale,
Pennsylvania needed to finance his fast-growing family of
railroads and related transportation companies.
Project: Arrange
financing for new transload facilities and track investments.
Carload Express Inc.’s Challenge:
In the summer of 2002, CEI was pressuring cash
flow to fund multiple growth projects.
Results of
Strategic Rail Finance’s work: Strategic Rail Finance
clarified CEI’s operational finances, attracted new lenders,
reinvigorated existing bank relations, and coordinated
new financing with a reengineering of debt, credit lines, and
collateral assignments. Some of the accomplishments were:
Ø
Secured $500,000,
five-year financing at prime interest rate
Ø
Lowered overall monthly debt service
including new financing
Ø
Quantified previous investment
in track and locomotive upgrade as
equity for bank purposes
Ø
Gained pre-approval
of large international investment bank for future
acquisitions
Ø
Released property, cash, inventory, and
receivables from all collateral assignments
Bottom Line −
Strategic Rail Finance
arranged $300,000 in new financing AND lowered our client’s
overall monthly debt service
Iowa Interstate
Railroad
We
contributed to significant savings for Iowa Interstate Railroad,
a professionally run railroad with a Wharton MBA as CFO and
Arthur Andersen, Inc. audited financial statements.
Project: Invent
solution to save $16,000,000 Net Loss Carry Forward Tax Credits
about to expire.
Iowa Interstate Railroad’s Challenge:
Railroads have few lenders available for even the
most common capital needs. Iowa Interstate needed an
innovative finance partner for their situation.
Results of
Strategic Rail Finance’s work: Strategic Rail Finance
solved this unique rail industry challenge. Our solutions
were developed by looking beyond the financial statements to
include the railroad’s strengths and its significant role in
mid-west transportation. Some of our contributions were:
Ø
Quickly sizing up options
across the spectrum of financial institutions
Ø
Decreasing $3,300,000 of balance sheet
liabilities
from lender’s calculations
Ø
Pinpointing source for $13,500,000
sale-leaseback transaction
Ø
Illuminating operational assets
not included in company presentation
Ø
Identifying successful strategy
for saving Tax Credits in time
Bottom Line − $16,000,000 in Tax Credits were
saved by
Strategic Rail Finance’s
innovative approach and specialized industry knowledge
