Maine-based railway involved in Quebec crash that killed 47 files for bankruptcy

The wreckage of a Montreal, Maine and Atlantic Railway train is pictured after an explosion in Lac-Megantic, in this file picture taken July 6, 2013. A fireball leveled the center of the picturesque lakeside town of Lac-Megantic, after the runaway freight train with 72 cars of crude oil derailed, killing about 50 people. Montreal, Maine and Atlantic Railway filed for bankruptcy on August 7, 2013.
MATHIEU BELANGER | REUTERS
The wreckage of a Montreal, Maine and Atlantic Railway train is pictured after an explosion in Lac-Megantic, in this file picture taken July 6, 2013. A fireball leveled the center of the picturesque lakeside town of Lac-Megantic, after the runaway freight train with 72 cars of crude oil derailed, killing about 50 people. Montreal, Maine and Atlantic Railway filed for bankruptcy on August 7, 2013.
Posted Aug. 07, 2013, at 3:21 p.m.
Last modified Aug. 08, 2013, at 6:49 a.m.

BANGOR, Maine — Burdened by cleanup costs, a negligence lawsuit and the loss of its main rail line into Canada, the company that owns the runaway train that killed 47 people in Quebec last month filed for bankruptcy on Wednesday.

Montreal, Maine and Atlantic Railway filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Bangor, according to the federal court system’s electronic case filing system. Its Canadian counterpart, Montreal, Maine and Atlantic Canada Co., also petitioned Canadian civil court for relief under the Companies’ Creditors Arrangement Act, officials said.

“It has become apparent that the obligations of both companies now exceed the value of their assets, including prospective insurance recoveries,” said Ed Burkhardt, president of MMA parent company Rail World Inc. of Des Plaines, Ill.

The unmanned train hauling 72 tankers of crude oil derailed and exploded in Lac-Megantic on July 6, destroying the center of the town. It had been parked on a main track atop a steep slope in Nantes, Quebec, about six miles away. The accident dumped several million gallons of light crude oil into nearby soil, lakes and streams. Cleanup operations and civil and criminal investigations continue.

The first of many expected lawsuits, a class action claim, was filed in Canada on July 15 by several victims who claimed that negligence and inadequate tanker design caused the accident. MMA, Irving Oil Operations Ltd., World Fuel Services Inc. and Dakota Plains Holdings Inc. were named as defendants.

No dollar amount on the damages claimed by the lawsuit will be available for some time, officials said.

Chapter 11 bankruptcy would allow the rail companies to retain their 85 workers and continue all “essential rail services” to their 200 customers in Quebec, Maine and Vermont. They could continue service through Lac-Megantic when that track reopens, officials said.

MMA estimated that its debts totaled about $3.5 million prior to the accident, according to an affidavit signed by M. Donald Gardner Jr., vice president of finance and administration and chief financial officer for the railroad. He said that figure excludes a multimillion-dollar loan from a federal agency that oversees railroads, and a line of credit.

Gardner also said that MMA was seeking “to operate in Chapter 11 until a sale of the system can be consummated.” The affidavit was filed Wednesday with the bankruptcy petition.

Burkhardt called the bankruptcy and its Canadian equivalent “the best way to ensure fairness of treatment to all in these tragic circumstances.”

The company appears to have set aside nearly $786,000 as “indemnification and/or contribution in connection with wrongful death litigation and other claims,” according to a listing of the company’s 20 largest creditors.

“MMA wishes to continue to work with the Quebec Ministry of the Environment, the municipality of Lac-Megantic, and other government authorities in the continuing environmental remediation and cleanup as long as is necessary,” Burkhardt said.

The company “will do everything within its capacity to achieve completion” of the cleanup, he said.

MMA still owes $27.5 million of a $35 million loan it received from the Federal Rail Administration in 2005, according to Gardner’s affidavit. The railroad also has a $6 million line of credit with the Wheeling & Lake Erie Railway Co. issued in June 2009. That company has sought to protect its security interest, the affidavit said.

U.S. Bankruptcy Judge Louis Kornreich will hold a hearing at 1 p.m. Thursday at the Margaret Chase Smith Federal Building in Bangor. The judge is expected to rule on motions filed by MMA’s attorneys that would allow the railroad to continue operating.

Gov. Paul LePage said in a prepared statement Wednesday his administration is “committed to ensuring safe, continuous rail operations within the State of Maine for the benefit of shippers, the business community, and the citizens of the state of Maine.

“Maine [Department of Transportation workers] will vigilantly and actively participate in the bankruptcy and in any related proceedings before the [U.S.] Surface Transportation Board to protect the public interests of the state of Maine and its citizens and the rights of shippers to receive service,” LePage said. “It is critical that shippers have accessibility to the rail lines, which provide great economic benefit to our state.”

State transportation officials have for several weeks discussed with Maine’s four other rail freight haulers their possibly running MMA operations should the company go bankrupt. Under a railway bankruptcy proceeding, the federal government’s Surface Transportation Board would appoint a trustee to operate the railway, state officials have said.

The board would seek to create as little disruption in rail service as possible to MMA’s customers, which include Old Town Fuel & Fiber and the new Katahdin Paper Co. LLC. MMA lines run from Millinocket to Searsport and from Brownville Junction to Montreal.

The Hermon-based freight hauler owns 510 miles of track in the U.S. and Canada serving areas including Farnham, Quebec and Newport, Vt. Its repair shop is located in Derby.

Rail World Inc., MMA’s parent company, purchased the Bangor and Aroostook Railroad in 2002 for $50 million as part of Bangor and Aroostook’s Chapter 11 bankruptcy proceedings, according to a previously published report.

Montreal, Maine and Atlantic had between 200 and 999 creditors, according to the petition for bankruptcy filed Wednesday by Portland attorney Roger A. Clement Jr. The railroad estimated its assets at between $50 million and $100 million and its liabilities between $1 million and $10 million.

One of those creditors is the State of Maine Revenue Services. The railroad owes $68,499 to the state, according to the bankruptcy filing.

Among the largest creditors are:

• New Brunswick Southern Railway Co. Ltd. of Saint John, New Brunswick Canada, owed nearly $2 million.

• Flex Leasing I, LLC of Minneapolis, owed nearly $669,000.

• Canadian Pacific Railway Co. of Montreal, Quebec, Canada, owed more than $541,000.

• Valero Marketing & Supply of San Antonio, Texas, owed more than $316,000.

The bankruptcy filings will enable the MMA companies to serve customers, to preserve jobs, cover debts and ensure that all creditors are treated equitably under the law, company officials said.

Hermon Town Manager Roger Raymond said he did not know how many workers from MMA lived in town.

“Our involvement with the railroad is very limited,” Raymond said. “Their place of business is here but that really has no impact on the town beyond the people who work there.”

Brownville Board of Selectmen Chairman Walter Cook was dismayed at the bankruptcy of the company, which he said is probably the town’s largest employer.

“What it would do to the town, I don’t know. They have laid off a lot of men already,” Cook said. “It is definitely not good for the town or the area.”

MMA endured several years of salary cuts, layoffs and service difficulties that culminated when the company sought to relieve itself of about 232 miles of track through northern Maine about three years ago. The company’s fortunes rebounded somewhat when oil shipments from the Midwest started using Maine rail lines to ship product to refineries in Saint John, New Brunswick.

The company laid off 79 workers, including 60 Americans, on July 15 in direct response to the Lac-Megantic disaster and another seven workers, of whom three were Americans, about a week later. Burkhardt announced earlier this week that the hauler would no longer transport crude oil.

“I am not surprised. I was anticipating this,” Cook said of the bankruptcy. “When the disaster happened I said, ‘Wow, that’s the end of this railroad.’ They were on very shaky ground financially as it was.”

mdowd:

byline: Nick Sambides, Judy Harrison, BDN Staff

CORRECTION:

An earlier version of this story requires correction. The company was shipping oil to refineries in Saint John, New Brunswick, not in Quebec.

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