BANGOR, Maine — A U.S. Bankruptcy Court judge Wednesday approved a $3 million loan from Camden National Bank that will allow the Montreal, Maine and Atlantic Railway to continue operating with two-man crews running the trains.
Canadian authorities in August ordered the railroad to use two-man crews for all hazardous material transportation in response to the July 6 Lac-Megantic disaster, which killed 47 people. MMA’s owner has said such arrangements are common in many countries and the fact that the Quebec train had one engineer had nothing to do with the accident.
The loan is structured as a revolving line of credit up to $3 million and may be used only as working capital, according to court documents. It will be secured by the property and tracks the railroad owns in the U.S. and Canada.
“The loan will ensure that the [MMA] and MMA Canada have adequate working capital to continue operating pending a sale of their assets,” bankruptcy trustee Robert Keach wrote in his motion seeking approval of the loan.
Eight potential suitors have expressed interest in purchasing MMA’s assets, and seven have signed nondisclosure agreements, Keach confirmed Wednesday. Gordian Group, a New York-based investment bank Keach has secured to handle the sale of MMA’s assets, is speaking with the suitors this week, according to Keach. He hopes to begin the auction by the end of November.
Without the loan, the railway most likely would “run out of sufficient cash before the end of October 2012 and be forced to wind-down or abandon its operations,” Keach wrote. “In addition, uncertainty over the state of the [railway’s] liquidity and financing is resulting in a substantial loss of business, as shippers need to know that their cargo will reach its destination rather than being stranded by a suspension of operation.”
Keach also said that the Canadian Transportation Agency’s certificate of fitness, which expires Oct. 18, was dependent upon obtaining operating capital.
The Hermon-based railway has been using a $6 million line of credit, provided by Ohio-based Wheeling & Lake Erie Railway Co., to continue operating since it filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Bangor and Canada on Aug. 7. Keach said Wednesday that it would continue using that cash collateral to fund operations once a new agreement is worked out with Wheeling’s attorneys.
The railway sought bankruptcy protection a month after one of its trains rolled driverless down a hill before derailing in the middle of the town of Lac-Megantic, causing the fiery explosion that killed 47 people and destroyed the village’s central business district.
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.
In its bankruptcy filing, MMA estimated that its debts totaled about $3.5 million before the accident. That figure excludes the $27.5 million the railway still owes on a $35 million loan it received from the Federal Rail Administration in 2005.
MMA listed between 200 and 999 creditors in its bankruptcy filing. The railway estimated its assets at between $50 million and $100 million and its liabilities between $1 million and $10 million.
BDN Business Editor Whit Richardson contributed to this report.