POLITICS

MMA railway sale could be completed in December, says Quebec court documents

10/07/2013 01:49 EDT | Updated 01/23/2014 06:58 EST
MONTREAL - A sale of the insolvent railway involved in last July's deadly explosion in Lac-Megantic, Que., could happen as early as mid-December once a formal process to award compensation to victims and other claimants can be established, according to documents filed in a Quebec court.

The filings say as of Friday, the U.S. trustee overseeing the railway's bankruptcy proceedings has been contacted by eight potential buyers interested in the Montreal, Maine & Atlantic Railway. Seven of those have signed non-disclosure agreements to receive confidential data.

The Canadian monitor, Richter Advisory Group Inc., has been in contact with at least two possible bidders in Canada.

Court officials declined to identify the interested parties, but the transportation subsidiary of conglomerate Irving on Canada's East Coast says it continues to evaluate the deal.

"We're considering all of our options," said Mary Keith, a spokeswoman for J.D. Irving, operator of the NB&M Railways.

The proposed sale schedule for MMA, which must be approved by both the Quebec and U.S. bankruptcy courts, would see Oct. 31 as the deadline for expressions of interest from potential bidders.

A lead or "stalking horse" bidder would be chosen on Nov. 15 to set a floor price for other bidders. A formal auction of qualified bidders would take place Dec. 13, followed by court approval in Quebec and Bangor, Maine, three days later.

Investment banker, the Gordion Group, will conduct the sale.

Interested buyers must be prepared to continue providing service to customers in Quebec, Maine and Vermont, and are permitted to bid on the railway's total assets or just those in Canada or the U.S.

MMA's American assets have been estimated at between US$50 million and US$100 million, while the Canadian assets were pegged at about $18 million. Proceeds from the sale would also be complemented by a $25-million policy from XL Insurance.

Meanwhile, Travelers Property Casualty Company of America, which has paid $250,000 to repair the damaged track in Quebec, is trying get out of the rest of its US$7.5 million coverage for the railway.

A hearing on the issue is scheduled for Wednesday in Maine, with officials hopeful that a formal claims process will be approved by the courts by Nov. 30. Thousands of claims are expected to be filed, according to the monitor's third report.

While the claims process is still being considered, it will include a framework for the valuation and adjudication of the claims, development of a claim form and the scheduling of several information sessions.

The court officials are seeking extensions in creditor protection until mid- to late January.

"The continued uncertainty surrounding the possible expiration of the stay or extension and the extension of the certificate of fitness has caused considerable uncertainty among the petitioner's customers," the report said.

Dozens of MMA's customers wrote letters stating that an end of railway services would "have significant financial consequences and would result in job losses in the regions and the closure of various companies." A recent survey of businesses by regional economic development agencies determined that 700 jobs and investments totalling $20 million would be at risk if the railway is shut down.

Meanwhile, Camden National Bank has approved a US$3-million line of credit secured by the railway's U.S. assets to support ongoing operations. However, the funds wouldn't be enough for necessary track repairs or to pay lawyers and other professionals involved in the court proceedings.

The Quebec court is being asked to increase administrative charges to $2.5 million, while the U.S. trustee is seeking to allow up to US$5 million of fees to be paid from the railway's assets.

Forty-seven people were killed and much of the centre of the picturesque Quebec town was destroyed after an unmanned, runaway MMA train derailed and exploded July 6. An estimated 1.48 million gallons (5.6 million litres) of oil were spilled.

The crude oil that exploded in Lac-Megantic was as volatile as gasoline, but was documented as a less-dangerous product akin to diesel or bunker crude, the Transportation Safety Board has said.