Those of us here in Maine figured this was coming in the wake of the Lac Megantic catastrophe. Here’s a link to the story on one of our Maine TV stations.
http://www.wcsh6.com/news/article/252438/314/Montreal-Maine--Atlantic-Railways-files-Ch-11
Carl
It really isn’t anything to be alarmed over…MM&A will continue to operate but has protected itself and its employees from impending law suits as a result of the LaMagantac disaster and, evidently, other problems.
They played the “Get out of jail free” card.
So, what does it all mean? Does MM&A not have to pay for damages now? Will they pay some lesser amount? If they are sold, will the buyer assume paying the victims families damages due them?
George
An expect result. The timing is almost perfect as all the costs of this disaster will be included in the bankruptcy filing. MM&A Canada and US may have as well paid some of their critical creditors before filing however recovery of some of those funds will may happen by the bankruptcy court.
MM&A Canada filed bankruptcy as well for their Canadian RR portion . How the Canadian laws work will be the job of other posters. One item of interest is the actual ownership of the RR wreck scene since an American crew was supposed to take the train from its parking site across the border. All in all a bad mess ! !r
All in all quite a mess. The lawyers will be quite busy. Multiple jurisdictions, multiple countries. Unfortunately for crude ht rail the shipper and receiver may get stuck for part of the cleanup bill. The question will probably boil down to how much is considered cleanup and how much is damage. Makes a big difference in any environmental damage claim. No bankruptcy is no get out of jail card. If criminal negligence is proven that is a different matter then just paying for damages. Rgds IGN
One other item. Some of the cost. http://www.boston.com/news/local/maine/2013/08/04/quebec-tragedy-brings-hardship-maine-rail-town/Z6FwdpXpIZc5ve3tFv7mpI/story.html If someone could provide the link. It is an article on the effects in Brownville, Me. Rgds IGN
I beg to differ with what was said. The receiver (purchaser) is a victim too. They purchased the crude oil, but did not recieve it and will want to be compenssated for its value. They had nothing to do with the wreck, that is the shipper (MM&A).
Not true, until the Oil would have been delivered, Irving Oil are out nothing except for the interruption of their production. Ownership of the oil remained with World Fuel or their subsidiary, until it rolled into the gate at St. John, NB. Obviously it never did.
With MM&A in bankruptcy, maybe someone else can then purchase that line at a fire sale price. It has the natural advantage of being the shortest rail link to Eastern Canada from central Canada. Perhaps this might fit well into CN’s network, or maybe CP can have another look at it and buy it back.
Might also work well for G&W…A long shot: Irving has deep pockets and may be able to purchase the entire line as a way of securing transportation for his products. He already owns the New Brunswick Southern and Eastern Maine Railways… the price might now be right for this multi billionaire to snap up the entire line.
Unfortunately I don’t think the MMA will survive this bankruptcy. They have stated that they have between 50-100 million in assets. They already owe between 25-50 million in outstanding debts. The damage estimate from the Lac Megantic disaster are in excess of 200 million. And that is not including lawsuits already filed concerning all of the tragic loss of life. The MMA’s east-west line from Maine to Canada is going to be shut down for a long time. Many of MMA’s major customers, like Great Northern Paper in Millinocket, are scrambling to find other ways to ship their products now. So, very little revenue is coming into MMA’s coffers.
MMA already sold off the old north/south Bangor & Aroostook line in 2010, to the State of Maine. Maine has since leased the line to Irving Transportation, which has been using it regularly. Irving needs an east/west rail line through Maine to transport oil & other goods from Quebec to New Brunswick. I think we will eventually see MMA fold & Irving will take over the lines.
Carl
OOPS! Forgot to add that it was revealed just the other day that MMA’s liability insurance is only 25 million. There’s no way they’re going to survive this.
Carl
Chapter 11
Companies choose to file Chapter 11 because its long-term revenues will be higher than the liquidation value of the assets. This way, creditors can get more money back if they allow the debtor business to reorganize and work out a payment plan. The business becomes a debtor in possession, maintaining control and ownership of their assets and continuing their regular operations. At this point, there is usually no trustee.
A company that declares Chapter 11 must disclose all of its assets and make a list of all the debts that it is seeking protection from. This is the creditors’ right to question the debtor, a fundamental part of bankruptcy law. In cases involving millions or billions of dollars, this step alone can be incredibly complex. The creditors also meet with the debtor.
If the bankruptcy court finds that there has been fraud or gross mismanagement on the part of the debtor, they can appoint a trustee, who will take over the operations of the debtor for the duration of the proceeding. The business continues to operate as normal, but the original owner is no longer in control. The trustee appointed to a specific bankruptcy may be different from the “U.S. Trustee.” While federal bankruptcy courts are in charge of the proceedings, the Department of Justice also assigns a U.S. Trustee to each district. The U.S. Trustee serves as a watchdog over bankruptcy cases and may act as the trustee in a proceeding.
While under Chapter 11, a company can only make the usual sales and purchases that are part of its standard business operations. For example, it can’t buy out another company, sell off a division of the company, or sell a major piece of equipment or property without approval from the court. It can’t undergo a major expansion, either.
In all Chapter 11 proceedings, a creditors’ committee represents the majority of the unsecured creditors, and negotiates the best possible payment options for them. Large-scale cases may have multi
SCHLIMM:
I think we all understand what Chapter 11 entails. However, we have a set of circumstances here that all but insure that MMA will not survive it. There was a breakdown of their current debt to creditors on our local news here the other day. I forget the exact breakdown, but one debt alone was over 20 million. There were several others, a few million here, a few million there, so their current debt is somewhere between 25-50 million. The current estimate of physical damage alone in the Lac Megantic disaster (that’s JUST physical damage…buildings & infratructure of the town) is over $200 million. That does NOT include the damage (which is essentially total) to the MMA rail lines & infrastructure that was destroyed & will need to be rebuilt. It also does not include damages for loss of life & loss of income for all the businesses destroyed. Some of those lawsuits have already been filed & more are sure to come.
MMA main east/west line through Maine is in-operable & totally shut down. It will be for a long time to come. So, they have no revenue coming in. There’s no way you can work out a payment plan for your creditors, no matter how equitable, if you have no income coming in. The MMA has only between 50-100 million in assets. Their liability insurance only covers 25 million. When all is said & done, they could be looking at 500 million (half a billion) or more in liability. The numbers just don’t jive. There’s no way they’re going to survive this.
Carl
The Rock Island and the Milwaukee Road didn’t survive bankruptcy, but a large amount of trackage that they operated when they entered bankruptcy is still operated.
Schlimm, that was an excellent summary of the Chapter 11 - Business Reorganizations of the U.S. Bankruptcy laws. There’s a lot of accurate and pertinent content in a concise statement there.
One supplement/ clarification to the quoted sentences (above): Chapter 7 is usually liquidation of the business, as in winding up its affairs and settling up its accounts, selling everything off, and distributing whatever the proceeds are to the creditors in accordance to their priority and the approved plan (if any). However, sometimes that is accomplished not via such an “asset acquisition” process. Instead, the liquidation can take another route, such as a forced sale of all of the stock to another entity (for example, to preserve the corporate shell and any special rights that are in or attached to its name alone), or a merger into another business, etc.
Another difference - to expand on another post above - is that even if the corporate entity goes out of business, the tracks and routes as physical assets can remain in place, and then be operated by the purchaser. Thus, a Chapter 7 liquidation does not necessarily mean that the tracks will be ripped up - only that the former owner railroad ceases to be and do business. The new acquiring business can then run a railroad operation - be a “train company”, as is sometimes said - on those same tracks, unless a decision has been made to abandon and salvage them. Finally, in any of these events, approval / concurrence by the U.S. Surface Transportation Board is usually required before a sale, acquisition, abandonment, etc.
Thanks again.
The Rock Island didn’t survive as an operating railroad, but the corporation survived bankruptcy.
The MM&A took bankruptcy to protect it’s assets. Any judgments against it could be reduced to pennies on the dollar. It may not be “right” in the way most people look at things, but it is legal. Johns Manville did the same thing many years ago when claims against it because of asbestos threatened the company. Bankruptcy can be a tool for companies to protect themselves, they don’t necessarily have to be down and out and completely cashless.
Now, I would not be surprised if the MM&A does not survive as an operating company. Given what seems like their existence hanging by a thread even without this tragedy, I could see them folding. I think it will be less so because of any damages they might owe and more to the fact they may lose customers or potential customers to the bad PR. Long term creditors and/or suppliers may not want to stand behind them, either.
One question about them saying they will no longer handle crude oil. How can they do that as a common carrier? I could understand the FRA ordering them to not handle haz-mat because of track conditions. I could even see them voluntarily embargoing themselves, but I would think that it would have to be for all haz-mat, not just oil.
Jeff
Jeff
You have put this situation in good perspective. Thank you!!
The challenges for MM&A are significant.
Charlie
Chilliwack, BC