Regardless of the current economic situation, what companies are out there that do funding of short line railroads? I have an opportunity and I’m in the kicking the tires stage…and the tires are good! Any help you can give me would be appreciated. Thanks!
First, run - don’t walk - and get a copy of the current (Jan. 2009) issue of Trains (it’s shown in the upper left corner of this webpage).
Somewhere in the front half is a page-and-a-half article about how the credit crunch has impacted shortline railroads - cash flow, loans, financing, etc. I don’t have my copy here at work today, and I forget who wrote it, and for some reason it’s not showing up in the “Current Issue” information on this website, but it was pretty darn good for the length and audience. (I’ll try to either post that info from home tonight or bring it in tomorrow to do that.) Since you’re asking questions like this, for the time and $5 to buy it, you’ll be far better informed.
Next, contact Roy Blanchard, who is the principal of The Blanchard Company, a consultant on shortline business matters, who’s also a Trains columnist from time to time (every 3 months is his rotation, I think). It’ll probably cost you a few dollars to get his advice, but again with your questions it would surely be money well spent. If I were in your shoes, that’s what I’d do.
Come to think of it, before you do that, look up all of his articles in the back issues and read them. Also, read all the articles and columns from Railway Age, Trains, and his own “Week in Review” newsletter that are posted on his website, at: http://www.rblanchard.com/index.html I see right on that page he has a short column on “Want to buy a railroad ?”
There’s a lot of information right there. Good luck with all of it. Let us know how it turns out, when you can.
- Paul North.
With due deference to Paul, don’t rely entirely on what Roy Blanchard says. Roy has a lot of valuable information and experience, but he represents one viewpoint. Check out the American Short Line and Regional Railroad Association page at www.aslrra.org also go to the STB site at www.stb.dot.gov. Go to the “Publications” link and check out the publication entitled “So You Want to Start A Small Railroad” it is a bit dated, but worth reading. Put together a thorough researched business plan including full financials and plan on putting a good bit of skin in the game. Have a good idea of both the scrap value price of the line you are looking at and its going concern value. If the line is owned by a Class 1 Railroad, talk to them before wasting your time and effort. Often they have lists of players looking to expand and have thought through how to spin off a particular line in accordance with their own plans. You can also e-mail me through the e-mail in my profile and I’ll try to give you more specific help if you want it. I’ve been through several short line startups. Good luck
LC
- What he said ^ ^ ^ (except the PM part - I don’t have any start-up experience on the business side, only on the track).
Thanks, LC. Isn’t this forum a great resource ?
- It’s in the “NEWS&PHOTOS” section, pages 18 - 19 (col. 1 only), by Roy Blanchard, titled “Short lines face new reality: scarce cash - With bankers tightening lending standards, short lines that rely on short-term loans face hardships”. Although it’s mainly about “current” operating cash & cash flow as distinguished from long-term purchase money (capital), the points made are valid for either application, it seems to me.
- Paul North.
Paul -
You make some good points. Financing for a short line startup is never easy to come by and the darn things have gotten very expensive and what you buy (or lease) seems to get worse all the time. There are a number of reasons for the rising prices. The rising scrap values of steel and other commodities, the resulting rise in locomotive, railcar, track and crosstie costs and the rise of the railroads in the new “Railroad Renaissance” increasing demand for a shrinking number of available miles.
As far as actually financing a purchase your best bet now is a good investor group of folks you know and are patient combined with borrowing from a good local bank if you have a relationship with such a bank. Private equity and “short term” investors are to be avoided. Generally, anyone who wants to come in with an “exit strategy” is to be avoided. Railroading is a long term commitment especially in the startup short line world.
LC
thanks for your help gentlemen! I’ll most likely be getting in touch with someone after christmas…