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.
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.
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.
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
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.
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?
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?
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.
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
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.
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.
Semantics. We have three kinds of ownership pertaining to this discussion:
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