Iowa Interstate Railroad

PROJECT DESCRIPTION

Solve $13.5MM rail finance challenge

BACKGROUND

Rail finance can be challenging. Iowa Interstate, professionally run with a Wharton MBA as CFO, and Arthur Andersen-audited financial statements sought SRF’s expertise to solve a difficult rail finance challenge.

Few lenders are available for the variety of funding situations which railroad companies face. Iowa Interstate sought to save a multi-million dollar tax credit prior to its expiration.

SRF APPROACH

Strategic Rail Finance quickly grasped all aspects of the company’s financial structure and accounting. SRF appreciated the railroad’s unique strengths and relevance to mid-west transportation. SRF’s analysis led to a remodeling of the company’s financial statements which transformed lenders’ financial ratio analysis. Strategic Rail Finance created a financial presentation and successfully identified the right lender for a rarely-used approach in contemporary railroad finance.

RESULTS

• Identified successful strategy to save tax credits prior to expiration
• Eliminated $3.3 million of balance sheet liabilities
• Identified and highlighted operational assets not included in company’s own presentation
• Quickly evaluated options in spectrum of financial institutions
• Sourced $13.5 million sale-leaseback transaction

Iowa Northern Railway Company

PROJECT DESCRIPTION

$25.5MM Railroad Rehabilitation and Improvement Financing

BACKGROUND

Iowa Northern (IANR) sought to position itself for growth within the Corn Belt and IANR management retained SRF to transform its capital access for pursuing these opportunities in the burgeoning ethanol industry.

IANR was profitable, but standard financial evaluations did not lead to funding at the levels required by the new opportunities. Banks are not always conversant in a particular industry, and may not grasp how the financial statements represent the company’s stability, collateral value, and growing place in the regional economy. This often happens with railroads, leaving even successful executives challenged to develop a comprehensive funding strategy.

SRF APPROACH

SRF stepped into the role of consulting CFO to oversee the transition from long-term bootstrap funding to full capitalization for rapid growth.SRF structured an innovative Federal Railroad Administration Railroad Rehabilitation and Improvement Financing (RRIF) loan, along with private sector credit facilities to expand overall capital access for years to come. Additionally, SRF identified new savings and revenues that exceeded all engagement fees.

RESULTS

• Closed $25.5 million RRIF loan, the largest Class III RRIF loan in the history of the program
• Secured additional $1.5 million financing from client’s current bank
• Arranged $2.75 million in new equipment financing
• Positioned enterprise for $17.0 million in investment capital
• Negotiated $700,000 in savings from previous lenders, debtors, and vendors
• Saved $197,000 through innovative agreement with track contractor.
• Facilitated $45.0 million in new capital for growing Class III rail operation.

Laurinburg & Southern Railroad

PROJECT DESCRIPTION

Advise family on rail line and rolling stock sale

BACKGROUND

The fourth generation owners of the Laurinburg & Southern Railroad called Strategic Rail Finance when they were ready to retire and sought to monetize many disparate assets.

The Evans family faced the imminent expiration of $5.5 million in tax credits in May 1998. The family engaged SRF to finance one part of the client’s solution, the reopening of a vegetable oil processing plant. The railroad and the plant were two parts of a complex set of assets that also included 6,000 acres of farm and timberland, 130 railcars, and 19 locomotives.

SRF APPROACH

Strategic Rail Finance coordinated negotiations with existing creditors and advised on the sale of the railroad.

RESULTS

• Increased railroad sale price by $1.0 million by clarifying undervalued rail assets
• Saved $1.6 million in satisfactory settlement with existing creditors
• Averted $5.0 million in new debt, previously considered unavoidable
• Saved $5.5 million in tax credits through creation of breakthrough financial and business strategy within 24 days of start of engagement to utilize recently enacted STB fast-tracking of smaller railroad transactions
• Delivered $13.1 million in benefits on eve of client’s retirement

Progressive Rail, Inc.

PROJECT DESCRIPTION

Finance $3.5MM rail transload, warehouse, and rail yard

BACKGROUND

Progressive Rail sought financing for a 50,000 sq. ft, 21-acre warehouse and transload operation.

Owner Dave Fellon was hemmed in by the peculiar challenges of railroad financing. After nine months of presenting his operation to every conceivable lender, neither his own bank, nor any other lender would finance this $3.5 million growth project. Fellon’s current bank held title to all corporate assets and was unwilling to lend more despite the expansion of the asset base since the previous financing.

SRF APPROACH

Strategic Rail Finance formulated a multi-part strategy which combined new financing with a reengineering of existing debt, credit lines, and collateral assignments.

RESULTS

• 130% financing
• Coordinated $2.5 million 20-year financing at prime+75 bps
• Arranged $500,000, 1.77%, 10-year state government loan
• Secured $685,000 additional credit facility on existing assets
• Established $750,000 equipment purchase line of credit
• Negotiated $200,000 cash contribution from connecting Class I carrier
• Facilitated release of cash, inventory, and receivables from all collateral assignments
• Brought $4.6 million to two-mile industrial park switching railroad

Carload Express