Media Archive

Buyer files B&A sale papers

Article from The Piscataquis Observer, Vol. 164, No. 32, August 07, 2002

By Sarah MacIlroy
Staff Writer

PORTLAND – The Bangor and Aroostook Railroad will be back in court again this Friday when a federal bankruptcy judge hears a motion for adding compensation conditions to an agreement filed July 24.

The 43-page asset purchase agreement was filed in U.S. Bankruptcy court by Rail World, Inc., the Chicago-based rail company who first documented their intent to buy the B&A last year. As a routine part of the agreement,. Rail World is seeking $1 million as a "break-up fee" as security if their proposal to buy the system falls through or if their offer is topped by a more lucrative bid.

The payment will in part compensate the company for serving as what Trustee James E. Howard calls "a stalking horse," an entity whose offer locks in a bottom price for the assets

"The break-up fee is necessary to incentivize and compensate the purchasers (Rail World, Inc.) for serving as a 'stalking horse' and is designed to encourage, rather than chill, competitive bidding," explained Howard in his motion to the court. "Indeed, the amount of the break-up feeśless than 3 percent of the value of the purchase priceśnot only constitutes a fair and reasonable percentage of the proposed price, but also is customary for similar transactions of this type."

In their agreement, Rail World proposed a price tag of $50 million for B&As assets, a purchase price that could increase up to $5 million more depending on future agreements.

"(The purchase agreement will provide a minimum bid on which other bidders can rely, thereby increasing the likelihood that the price at which the assets will be sold will reflect their true worth," Howard stated.

According to the court documents, Rail World does have the right to back out of the sale agreement if their break-up fee is not approved. If the court does approve the agreements filed by Howard and Rail World, the sale could be open to other bidders by September, but other companies wishing to buy the B&A assets would, according to the agreements, have to make their bid at least $2 million more than Rail World's $55 million offer.

B&A's bankruptcy process started in August of 2001 when a Chapter 11 case was filed against the company by their creditors, forcing the railroad into involuntary bankruptcy. The railroad's secured creditors include area towns of which Milo is owed several hundred thousand in back taxes on the Derby shops.

Regardless of who takes the total B&A assets, the primary interest of most parties involved is to see the sale completed as soon as possible.

B&A President Fred Yocum said his company was happy with how the sale was progressing, but would like to see it move a little faster. The railroad is losing about $500,000 a month in revenue, he said.

"We want to get this wrapped up as soon as we can in order to cut the losses and pay the creditors," he said.

Up next of the agenda is to have a sale motion before the court by Aug. 31. The sale motion, when approved by the judge, will define the details of the sale and how it will be opened to other interested buyers.

"The sale motion will have a complete schedule proposed to the judge designating who the buyer is," Yocum said. "The bid process...(will be) in essence a type of public auction. So, there will be a proposed schedule (for that)... There needs to be a whole process as far as what happens if someone else wants to come in, what more they have to offer, when they have to do it, how it is decided if it is a better offer, and all those kind of questions."

The purchase agreement presented by Rail World, Inc. would include seven systems of the B&A, including the Quebec Southern Railway and the Canadian American Railroad.

NOTE - This article reflects the views of the author and not necessarily those of the TRC Alliance Team.