tatans wrote: futuremodal wrote: Just saw a news blurb that US Express is going private. Swift has already gone private.So is it inconceivable that a Class I may go private in the foreseeable future, say a KCS?Yikes, "private" you mean the trucking industry is Government controlled? also the railroads? I assumed these were in private hands, be careful, we neighbours to the north are used to these socialist leanings.
futuremodal wrote: Just saw a news blurb that US Express is going private. Swift has already gone private.So is it inconceivable that a Class I may go private in the foreseeable future, say a KCS?
Just saw a news blurb that US Express is going private. Swift has already gone private.
So is it inconceivable that a Class I may go private in the foreseeable future, say a KCS?
Yikes, "private" you mean the trucking industry is Government controlled? also the railroads? I assumed these were in private hands, be careful, we neighbours to the north are used to these socialist leanings.
Semantics. We have three kinds of ownership pertaining to this discussion:
Michael:It appears that the Private Equity craze of the past couple of years (it has been around longer than that, but for the past couple of years it has been the driving force on Wall Street) may be coming to a big slowdown.
Why? The art of financing the LBO's appears to be changing. As I outlined earlier, the debt markets have dried up. Companies simply cannot place their high yield debt now and it is forcing the banks that provided the bridge loan financing to assume longer term debt. They dont want to hold that kind of paper on their balance sheets as assets.
Many of the deals that are in play now are struggling with financing as lenders require real covenants instead of no covenants and PIK provisions.
It will be interesting to see how the CP plays out.
ed
CSSHEGEWISCH wrote: Chris_S68 wrote: Safety Valve wrote: Let's say that Wall Street is a leech and a parasite. Ya got that right. The world's economy is based on a pyramid scheme.And how else would you trade stocks and bonds?
Chris_S68 wrote: Safety Valve wrote: Let's say that Wall Street is a leech and a parasite. Ya got that right. The world's economy is based on a pyramid scheme.
Safety Valve wrote: Let's say that Wall Street is a leech and a parasite.
Let's say that Wall Street is a leech and a parasite.
Ya got that right. The world's economy is based on a pyramid scheme.
And how else would you trade stocks and bonds?
I have been reading these last few days of the slow death and failure of the entire credit system on wall street. It seems prophetic that the so called housing boom is nothing more than borrowed money which is now due and wholly payable... there is a gigantic game of musical bill in progress at wall street after the light went out. Looks like several funds are left holding the bag with Banks next in line when the selling stops.
I am also seeing today where the market is sliding like a bad train wreck in progress as people open eyes and see the landscape. Reminds me of 1987 all over again. Certainly feels like it too.
I think were going to settle this out and be done with it and it's going to hurt. Future business will need to backed or secured with real money. Everything else is just based on future payments at interest rates no one wants to carry.
My spouse made a comment some time ago that bothered me a little bit. What happens when the debt holders are told to pay up right now, in full the remaining balances on thier borrowing? Because the Banks, Credit Lenders are in need of capital to feed thier efforts to get out from under bad debt?
Im glad we got out of the Mortgage game by paying off our home free and clear and carry Zero debt on our credit cards. Let me take this one step further...
We owe a student loan. The payment we make at the rate we have is fixed. They can never change that. We are more than content with this very low rate which we feel is supported by Uncle Sam somehow.
Now suppose you look at the pile of junk mail from Big Consolidation Company who is telling me that thier records indicate I have not consolidated my student loans (Wrong, already consilidated) and that they can save me hundreds of dollars in monthly payments if I call them today and allow them to take over the existing student loan.
All nice and smooth with positive overtones to soothe my stress and entice me to accept this nice letter from Big Consolidation Company.
Guess what? The rate Im paying is about 2% Big Consolidation Company New rate is somewhere above 5% as of the letter. I would be very stupid to accept this solitication from this Big Consolidation Company.
Let's look at wall street and learn that Big Consolidation Company is stuck with increasing numbers of Foreclosers, bad debt that they cannot unload and trying to get new income at interest rates that Myself and others are not willing to pay.
What happens to Big Consolidation Company now? They must die. What happens to everyone tied to Big Consolidation Company? They will take some damage. The scope of such damage will depend on if they are a lender or a ower.
Or worse, Big Consolidation Company's Name is uttered in the halls of Congress because they are subsidized by our Federal Budget in amounts so large that our elected Members to that August body are out of there within 4 years and dont have to worry about actually paying off that subsidary. We can leave that to our children so when they grow up and become Members of Congress, they can deal with that problem.
Little Consolidation Company who carries my student loan must feel as if they are sitting high and dry from the blood bath flooding the street these days.
Now if Im carrying a home mortgage that will eventually be forclosed and forced into bankrupcy as a last defense against Little Consolidation Company who is now asking for their past due payments and wants the remaining balance in full?
Certainly the small home owner like myself is a anchor of this Nation on Wall Street. If we are on the rock instead of borrowed sand that we cannot hold onto then Wall street will be strong. IF everyone is on sand.... all must fail.
The question that worries me is this: If the Street does fail and it falls to Uncle Sam to pay off the losses do we have the money in that Treasury down there in DC? Me thinks not.
Now I dont know about Leasing companies. One of the big trucking companies I worked for leases thier trucks. I think they leased about 1200 Tractors.
The lease payment is probably around 1400 dollars a month to Freightliner or to the Bank that arranged this lease. The company does save money each month by not owning the trucks outright.
Let's think for a moment that trucking company buys tractors. The payments will be 2000 dollars. Let's think also that now they own these equiptment and are immune to future problems except maintaince and breakdowns, attrition through loss and damage. They will have to tell the Tax Man every year about this equiptment.
Back to the Lease. What happens if there is trouble on Wall Street and the Leasing companies must call in thier chips? Does this mean that the 1200 tractors must now be turned back into Freight liner because there is no freight to haul? let's say that there are sufficient freight for 1200 truckers to run out of dispatch now.
What happens when the USA slows down and only 400 trucks can be kept busy? That means the company must carry payments on 800 trucks they dont use. How are they going to do this? If they give the tractors back to Lease company who likely cannot re-lease them because now no one has frieght to run.
Ponder me that.
I advocate owning the equiptment outright instead of borrowing or leasing for the reason that if owned wholly, they can park 800 units until frieght picks up again in the future. After all the other trucking companies leasing trucks have gone out of business.
If I wanted to build a trucking company with new trucks or nearly new with low miles, I would see a great oppertunity at the Auction House in this great sea of returned or re-possessed trucks. Especially if Im not required to pay off the outstanding loan attached to this equiptment.
Even in bad times there is oppertunity for those who hit the iron while it's hot.
MP173 wrote: While BNSF and UP are "within reach", the IRR numbers do not support the risk involved. KCS is probably the only one in which it would work and that is based on growth potential and cutting of costs.
While BNSF and UP are "within reach", the IRR numbers do not support the risk involved. KCS is probably the only one in which it would work and that is based on growth potential and cutting of costs.
Well, this didn't take long to materialize.
Private equity bid for Candian Pacific:
http://www.reuters.com/article/hotStocksNews/idUSN1826678120070718
"Assuming a private equity bid does materialize, we believe a strategic buyer alternative is unlikely to emerge given the regulatory environment," Mr. David said.
"This suggests bid competition would have to come from private equity alternatives prepared to accept lower IRRs [Internal Rate of Return] and limits the auction upside to $100 per CP share."
http://www.canada.com/nationalpost/financialpost/investing/story.html?id=55178b82-519e-499e-bafb-fb24ca9dc8d0
eastside wrote: So far this thread has focused on the financial aspects of a railroad going private. I would agree that given an environment of rising interest rates there’s less likelihood of a takeover of a Class I railroad. IMO, however, a private equity firm taking over a large railroad merely to leverage the financial structure would show a lack of imagination and wouldn’t necessarily maximize its return. Instead, one might consider a scenario where the new management might fundamentally restructure the corporate organization into a railroad operating company; an infrastructure company; and a holding company for non-railroad assets, e.g. real estate, trucking. All this, of course, would be done after they’ve sold off the parts of the firm not necessary to the operation of the three organizations. The infrastructure company would sell access rights to all comers, including other railroads. Then the owners would spin some or all of the parts off as separate public firms.
So far this thread has focused on the financial aspects of a railroad going private. I would agree that given an environment of rising interest rates there’s less likelihood of a takeover of a Class I railroad. IMO, however, a private equity firm taking over a large railroad merely to leverage the financial structure would show a lack of imagination and wouldn’t necessarily maximize its return. Instead, one might consider a scenario where the new management might fundamentally restructure the corporate organization into a railroad operating company; an infrastructure company; and a holding company for non-railroad assets, e.g. real estate, trucking. All this, of course, would be done after they’ve sold off the parts of the firm not necessary to the operation of the three organizations. The infrastructure company would sell access rights to all comers, including other railroads.
Then the owners would spin some or all of the parts off as separate public firms.
Aside from the non-railroad assets, it might be difficult for the equity firm to find any takers for separate infrastructure and operating companies. Regulatory issues would also have to be considered.
edbenton wrote:Basically the Santa Fe took everything but the RR from the Southern Pacfic Corp when the Merger was denied by the ICC and the DRG&W bought the SP from them. The only thing the Rio got was the RR the Santa FE got the rest.
Basically???? Totally! If there wasn't an operating railroad on the right-of-way or ancillary properties, ATSF got it. Pipelines. Trucking Companies. Steamship line (American President Lines now known as APL had a large stock block owned by SP). High-speed telacomunications company (SPRINT). Retained Land Grant properties. On and on and on.
It was these non-railroad assets that paid the railroads bills. Had for quite a while (IIRC since about 1950 or so). These assets paid for the re-building of the Lucin cut-off; built West Colton Yard and the new line down Cajon. CTC for the entire railroad starting in the 1960's (project nearly got completed). Almost got the double tracking of the Sunset started -- almost. After the rebuild, raised the entire Lucin cut-off when the Great Salt Lake level rose and started to flood out the line (detoured trains around the South end of the Lake via the WP for a LONG time).
erikem wrote:- something like what happened to the Espee after Anschutz bought it.
- something like what happened to the Espee after Anschutz bought it.
And look what it got him --- 50% of the UP
erikem:You bring up an interesting point about SP and Ansschultz purchase. I know very little about the SP, so I cannot really comment on that purchase. Can you discuss that some? It is my understanding (very limited) that SP was pretty much in freefall prior to Anschultz purchase.
Mark Hemphill had an excellent article on the SP's fall in That 70's issue of Trains back a few years ago. The failure of the Santa Fe merger seemed to just gut SP, both from a operations standpoint. Also, didnt Santa Fe walk away with considerable non rail assets from that failed merger?
MP173 wrote:So, in answering your foreclosure question with a question right back to you....would you want to foreclose on property right now? or take the added risk that it could be worked out?
So, in answering your foreclosure question with a question right back to you....would you want to foreclose on property right now? or take the added risk that it could be worked out?
IMHO, the better course seems to be taking the risk to work things out - and the news reports about the real estate market have been pointing to efforts to avoid massive foreclosures by lenders and local governments. I've heard plenty of horror stories of abusive lending practices.
For what it is worth, a lot of the consumer sales were being driven by people thinking that they were getting rich from rapid increases in their home equity (including lotsa home equity loans). I rather suspect that consumer spending will be dropping (if it hasn't already) and that will have a negative impact on carloadings (to keep this thread somewhat on topic).
Safety Valve wrote: erikem wrote: MP173 wrote: Once again, I will repeat...the debt markets have changed dramatically in the last few weeks. The added debt will cause the new debt and the existing debt to more than likely be considered junk status. Junk debt is not moving right now. Thus, the banks which gave the bridge loans are being saddled with the long term debt. I think you will see than beginning to greatly affect the number of deals made.Wonder how much of the change in the debt market is due to problems with the mortgage industry? My impression is that industry is leaning more towards taking some small losses with the problem loans than cutting their own throats by increasing foreclosures.I rather think the change with the debt markets will be good for the RR's in the long run - management will be concentrating more on running a railroad than aspiring for a buyout. I dont think Railroads do mortgage.
erikem wrote: MP173 wrote: Once again, I will repeat...the debt markets have changed dramatically in the last few weeks. The added debt will cause the new debt and the existing debt to more than likely be considered junk status. Junk debt is not moving right now. Thus, the banks which gave the bridge loans are being saddled with the long term debt. I think you will see than beginning to greatly affect the number of deals made.Wonder how much of the change in the debt market is due to problems with the mortgage industry? My impression is that industry is leaning more towards taking some small losses with the problem loans than cutting their own throats by increasing foreclosures.I rather think the change with the debt markets will be good for the RR's in the long run - management will be concentrating more on running a railroad than aspiring for a buyout.
MP173 wrote: Once again, I will repeat...the debt markets have changed dramatically in the last few weeks. The added debt will cause the new debt and the existing debt to more than likely be considered junk status. Junk debt is not moving right now. Thus, the banks which gave the bridge loans are being saddled with the long term debt. I think you will see than beginning to greatly affect the number of deals made.
Once again, I will repeat...the debt markets have changed dramatically in the last few weeks. The added debt will cause the new debt and the existing debt to more than likely be considered junk status. Junk debt is not moving right now. Thus, the banks which gave the bridge loans are being saddled with the long term debt. I think you will see than beginning to greatly affect the number of deals made.
Wonder how much of the change in the debt market is due to problems with the mortgage industry? My impression is that industry is leaning more towards taking some small losses with the problem loans than cutting their own throats by increasing foreclosures.
I rather think the change with the debt markets will be good for the RR's in the long run - management will be concentrating more on running a railroad than aspiring for a buyout.
I dont think Railroads do mortgage.
I wasn't saying that the RR's were doing mortgage. My point was that the shift in the debt market in the last few weeks might have originated from problems in the mortgage market (and as MP173 pointed out, has been a "train wreck" waiting to happen for the last 4 to 5 years). The related point was that the collapse of the debt market supporting the LBO's is probably good for the RR's in the long run - my gut feeling is that a LBO of a railroad would be a disaster for all concerned - something like what happened to the Espee after Anschutz bought it.
Also, I believe at some point China will take a look at US railroading, particularly if the rate structure gets too far out of hand on containers. Doubtful if they will be allowed to purchase an entire railroad (possibly the KCS), but they may make a sizeable investment.
They recently purchased 9.9% of Blackstone Partners (Wall Street Alternate Investment Fund) with their folding money.
KCS would be an interesting play since they now have the deep water port in Mexico. It would be a long slow route to the midwest, but so are the ocean container boats. Ever wonder why Union Pacific holds on to the St. Louis Chicago ex GMO line? It would give KCS access to Chicago.
ICE plus KCS would give a market to Chicago, plus all that coal with the DME. Just a thought while lookin at the wall map.
erikim:You are probably correct in your assessment of the mortgage problem. The financial folks went a little too far (actually much too far) in developing new mortgage products back 5 years ago. You could get a mortgage with no money down, interest only loans, ARMS with low teaser rates, etc. Those products spurred the economy on as a result of all the new housing.
Take a look at railroad earnings now. Part of the reason they are soft is the decreased carloadings of lumber and wood products. If you look at the railroad's financials and data, you will see those carloadings are down 10 - 20%.
I recall four years ago having a discussion with a mom who worked out of her house as a mortgage loan processor. She would get a daily DHL package of loan apps to process. She was appalled at what was happening. People were getting mortgages that would not qualify in the past. There was the belief that the equity in the houses would rise, thus creating wealth for the borrowers. The bubble burst and housing prices have dropped, in some cases very dramatically. When those loans (most were ARMS with balloons) came due for re-financing, the interest rates had moved up from the low levels, PLUS the teaser rates now became reality rates. Plus the borrowers shaky financials meant they would not get the low mortgage rates, but very high rates because of their situation.
What became of the loans? Brokers that originated the loans sold them to financial companies who then packaged the loans into Collateralized Debt Obligations (CDO's). They would take debt of all kinds and package it together (mortgages, treasuries, corporate, etc.) They then would "slice" those CDO's into tranches of debt, based on risk/returns.
Wall Street was looking for higher debt returns. Remember this was during the time of 4%+ treasury yields. So, they took on the higher debt returns/higher risk. Hedge funds bought the debt and leveraged it with more debt. In other words, they would purchase $10 billion of the high risk debt, using $1 billion of investment money and BORROWING $9 billion. When the loans started to default on the mortgages, which made up only a very small portion of the CDO's it started a chain reaction. Suddenly that slice of debt was worth less, but because of the ten to one leverage became worth considerable less. Add in the fact that these "slices" of debt are not activily traded on financial markets and suddenly you have a "slice" of finacial product which is falling quickly but you DONT HAVE A METHOD OF KNOWING WHAT IT IS ACTUALLY WORTH since it is not traded!
Want to foreclose on the late payment? Go ahead. What are you going to do with it? There are hundreds of millions of unsold NEW houses on the market. These are referred to as "spec" houses, built on speculation by a builder. Cant sell them and cant pay the debt on them. Now what? Foreclosure? Suddenly the financial company holding the debt is now a real estate company with values much lower than what was loaned. OOPS.
How does this affect our railroads you ask, other than diminished carloadings of lumber? Simple. It effectively takes them off of the LBO market. The rails typically have about 30%-%50% debt ratio, meaning that portion is financed by debt, the rest equity. Solid balance sheets backed up by real assets (ROW's, rail cars, etc) which are mortgaged. Having trouble sleeping some night? Read the loan covenants of a railroad. Those debt instruments are have solid ratings by the services such as Moody's, because they are backed by real assets and the railroads have abilities to pay the loans (called debt service).
If and when a private equity company purchases a railroad, they will put a small portion of the payment up with their own cash, the rest is borrowed or leveraged. Think back to the above reference to the hedge funds borrowing 90% to buy investments. Same principal here. Use other peoples money (OPM) to make a large return. Suddenly not only the hedge funds borrowing is going to be junk, but also the existing railroad's debt is junk. Values of the bonds fall to reflect the higher risk and bond holders are going to court to sue. The ability to borrow new money falls because of credit risk. That new capacity expansion project will be at 12% interest instead of 8%. Check out the increased payments on a simple financial engines caluculator what that increase in interest means.
Further, the market for junk debt has taken a tumble. Recent offerings such as US Foodservice and Servicemaster among others have been withdrawn. There is no market for the debt, as structured. That means the banks which loaned the money to private equity funds (bridge loans) are stuck with the long term financing. What they thought would be a 6 to 9 month loan is now looking like several years...at high rates.
I could go on, but no doubt have rambled enough. There have been a couple more big deals announced this week. I wonder where the debt will come from.
These things run in cycles. Wall Street got a little carried away. Bear Stearns is taking a huge hit on two of their hedge funds. Before you comment "so what, the rich can afford losing money" realise that the majority of hedge fund customers are pension plans, which affect UAW, Teamsters, UTU, etc.
MP173 wrote:Once again, I will repeat...the debt markets have changed dramatically in the last few weeks. The added debt will cause the new debt and the existing debt to more than likely be considered junk status. Junk debt is not moving right now. Thus, the banks which gave the bridge loans are being saddled with the long term debt. I think you will see than beginning to greatly affect the number of deals made.
FM:No insider within any of the railroads owns enough stock to do such a deal. Plus, the minute they declare they are interested in buying the railroad, then their relationship changes. Typically they are then excluded from BoD meetings and discussions. At tht time, they become an "outsider".
jeaton wrote: railroadjj wrote:I guess I am confused here about the whole subject. If I am taking a job with the KCS and it is likely they will go private, does this mean that I should not take on the new job, or is still ok. Unless you are being hired on as a Vice President or higher, don't worry.
railroadjj wrote:I guess I am confused here about the whole subject. If I am taking a job with the KCS and it is likely they will go private, does this mean that I should not take on the new job, or is still ok.
Unless you are being hired on as a Vice President or higher, don't worry.
Movie: "Hudsucker Proxy" anyone?
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
I would like to take you to page 10 of the TRAINS August 2007 issue, entitled Big investor demands staggering rate hikes by Andy Cummings. In this expose, the British hedge fund known as TCI (which has holdings in CSX, UP, and NS) is demanding a 7% rate hike over 5 years to improve stockholder earnings. The crux of the article is that such a staggering rate hike would cause shippers, already in a dark mood over current rail rates/service, to outright mutiny, and I suppose that would lead to even greater pressure on Congress to re-regulate the industry.
In that vein, do you suppose that the inside stockholders of a Class I might want to go private just to prevent influencial hedge fund holders from really messing things up?
Interesting thoughts about debt and cyclicals. I read today where Cerebus debt for Chrysler will be considered non - investment grade ( kind words for junk bonds). The higher leverage certainly makes interest coverage much more interesting for bond holders. What makes Chrysler so attractive is the potential to reduce costs thru containment and elimination of legacy costs, such as retirement benefits (health insurance primarily). UAW just took a huge haircut on the new contract for Delphi, dropping wages over $10 per hour. They knew it had to be done, auto parts are easily manufactured elsewhere today. There is no real fat to be trimmed from rail operations at this time.
The thoughts today are that the railroads have pricing power which will stick which will lead to increased margins and the abilities to service the debt.
However, the potential returns on taking a company private are simply not there. Remember, the Private Equity companies take a company private with the purpose of selling later, usually as an IPO. Railroads typically sell at fairly narrow ranges (either PE or EBITA ratios). They are currently at that high water mark. As Ed indicated, it would take quite a bit to get NS on board, which would push the total Enterprise Value thru the roof, making the entire process difficult to justify, not only on an equity basis, but also on a financing platform. They will not be able to squeeze much out of the operations at NS and growth will be steady from here on out. No compelling reason to make the deal.
Hey Joe....welcome aboard.
NS seems to have calmed down a bit over here. Anything new your way?
MichaelSol wrote:The idea of the Staggers Act was that the market itself would provide the benchmark for rate reasonableness in those instances where a true market did not exist. The STB has confounded that theory by saying it would not apply the regulation until railroads reached revenue adequacy -- which the STB saw as economic health. These private equity guys see it the opposite -- that such companies don't have enough debt. They laugh at these STB standards.The U.S. rail industry historically never earned its cost of capital, particularly the screwy way it is defined just for the rail industry. There may be good reasons for that, and I mean that from the standpoint of being able to operate and make long term investment decisions over several business cycles without becoming a takeover target to exploit. The implications for a privatized Class I railroad seem to me to be substantial -- haven't thought it through much from a regulatory standpoint -- but the idea that a Carl Icahn may be in charge of a major U.S. railroad at some point speaks to wealth enhancement of Carl Icahn at the expense of the industry, shippers, and the U.S. economy. Not sure I like the idea -- but the (non)-regulatory structure of the past several years may have made it inevitable.
The idea of the Staggers Act was that the market itself would provide the benchmark for rate reasonableness in those instances where a true market did not exist. The STB has confounded that theory by saying it would not apply the regulation until railroads reached revenue adequacy -- which the STB saw as economic health. These private equity guys see it the opposite -- that such companies don't have enough debt. They laugh at these STB standards.
The U.S. rail industry historically never earned its cost of capital, particularly the screwy way it is defined just for the rail industry. There may be good reasons for that, and I mean that from the standpoint of being able to operate and make long term investment decisions over several business cycles without becoming a takeover target to exploit.
The implications for a privatized Class I railroad seem to me to be substantial -- haven't thought it through much from a regulatory standpoint -- but the idea that a Carl Icahn may be in charge of a major U.S. railroad at some point speaks to wealth enhancement of Carl Icahn at the expense of the industry, shippers, and the U.S. economy. Not sure I like the idea -- but the (non)-regulatory structure of the past several years may have made it inevitable.
One recurring theme of Hilton & Due's book on interurans was that they typically used a relatively high level of debt financing (bonds) and ran into trouble when the revenues dropped below operating costs and interest. Debt financing is not appropriate for companies that experience with cyclical revenues.
Unfortunately you are probably correct in that LBO's usually benefit the likes of Carl Icahn more than they do the general investing public (though I have made some good many from owning stock that were bought out), the employees and customers.
MP173 wrote: I do not dispute there have been larger take outs this year. TXU is a rather interesting one in particular. The quote from the Economist is interesting. However, I submit that the private equity market has changed rather dramatically since that article in May.
I do not dispute there have been larger take outs this year. TXU is a rather interesting one in particular. The quote from the Economist is interesting. However, I submit that the private equity market has changed rather dramatically since that article in May.
Oh, I agree, and with your earlier comment as well; these things move in cycles, and the private buy-outs have hit a high this past year. And tempting targets are certainly harder to find, and more expensive as well. On the other hand, that may mean more money searching for fewer opportunities.
TCI and Carl Icahn still seem to moving toward ... something ... involving the U.S. rail industry, and big buyers have been buying at what would ordinarily be at a topping out of stock prices -- topping out both because most of the run up due to pricing power seems to have already occured, and because of the point in the business cycle.
I have long maintained that captive pricing distorts investment decision making and that it was ultimately harmful for railroads to rely for their profitability on a relatively smaller number of shippers while offering cheaper or even cross-subsidized rates to a larger number of shippers. The STB policy of not ensuring application of market analysis to captive rates, until such point as railroads reach "revenue adequacy" introduced all sorts of distortions throughout the economy. It was "negative" regulation -- that market analysis would not be applied until such time as ... they engendered enough exploitable distortion that they went private, and could not be regulated at all?
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