Short Line Investment?

[tormadel]

QUOTE: Originally posted by edblysard

QUOTE: Originally posted by Limitedclear


32 miles. 115# and 112# with some 100# in sidings. Jointed. 2 miles of 115# CWR.
timber ties. 6 bridges all steel. Ruling grade 0.7%. Max curvature 10 degrees. Runs along river. Interchange: NS and CSX. Paper barriers possible.

Employees: 4 T&E; 3 MOW. To be adjusted as required by growth.

Equipment:

Locomotives: 2 4 axle units(2000hp) and 4 six axle units (3,000+hp)

MOW: Hirail inspection truck, Hirail Boom truck, backhoe, tamper, regulator others as deemed necessary.

Andrew, note the rail numbers, 115#, 112# and 100# jointed in some sidings...
As long as you run at restricted speed, its a good track base...would have to see how it was maintained, but thats what mudchickens do!

Hehe, hell yeah [:)]

[tormadel]

I'm not sure the answer there Micheal. But, I can't remember the last time I saw just a switch engine doing anything but jockying around a yard. Wisconsin Central runs around the valley here working paper mills and everything else with either a GP40, a pair of GP38's or a pair of GP40s. I've seen 2 '38s heading back to the yard with 12 cars, why that much for so little? I have no idea. Maybe they had alot more when they headed out. But also I believe in the mid 70's there you were still having a majority of 70ton cars, not the 100 and now 125 ton thugs you see today. Just my 2 cents.

[tormadel]

Well, I can see what Micheal is saying basically in the early years if revenue needs time to come up perhaps be more stingy with how much you spend on locomotive leases. But, on the other hand, if you short yourself too much power and have any problems you're service could suffer, and good service is the golden rule for survival here. We need to give our customers every reason to believe that we are the best choice for every<logical> shipping need. I can believe LC when he says good deals can be had on SD40's these days, alot of them floating around now. I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

[jeaton]

Looking at the comments Michael and LC have made on staffing, I'd like to add a couple things.

I am inclined to go with the idea that 5 managers (6 with the board member) might be taking too large a slice out of the revenue stream. I think that the organization might do without a Controller and function OK with an administrative/accounting clerk backed up by a CPA on retainer. However, if everyone on the management team is willing and able to perform everything from the most menial tasks on up, then I think the staffing can be justified. And when I speak of "most" menial tasks, I am thinking of things such as cleaning locomotive windshields, sweeping the office floors and hauling out the waste. Of course, a manager would set priorties for tasks from most important to least important, but if the five are not putting in about 250 hours on a slow week, staffing would need to be reviewed.

Fun thread, though.

[tormadel]

I doubt the boardmember(s) are going to work 50hrs a week for$5000 a year. But I would not worry about the others. Getting this company up and started, then keeping it alive will take alot of work. Given these officers back grounds I do not think it's likely that they would shirk they're responsabilites. There is no room in the budget for assistants or the office toady, so it seems set out to me that the whole staff is dedicated to rolling up they're sleeves and doing it all.

[MichaelSol]

QUOTE: Originally posted by SD38SD39locomotives
I used to do cost sheets like this. I'd get all the est. expenses wrapped together for operating costs, and then double it. Yep, thats right, DOUBLE IT! That would then be the est. operating cost.

This approach is accurate probably more often than not. But, that's why pro forma operating numbers for any business need to be worked and worked.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by SD38SD39locomotives
I used to do cost sheets like this. I'd get all the est. expenses wrapped together for operating costs, and then double it. Yep, thats right, DOUBLE IT! That would then be the est. operating cost.

This approach is accurate probably more often than not. But, that's why pro forma operating numbers for any business need to be worked and worked.

Best regards, Michael Sol

Hi Mike,
I couldn't agree with you more. The numbers always have to be being worked and worked. It's a never ending job and a necessity. Plain and simple. The scheme of kicking the op. costs by double, just gives a nice blanket to be able work those numbers without even giving the chance for everything falling apart out of the gates. I don't care how talented a controller / accounting team is. I want the security blanket. For one thing, because I've seen too many so-called "professional" operations fall apart in the past around this part of the country. Including a company my dad worked for. Look no further then Enron of all things, to put a face on the phrase -so-called professional operation-. Now I'm more conservative then liberal, when it comes to talking about money, but my view is this: if you don't have the costs liberally covered with some slack to go along with them, might as well not bother with even going into business then. Thats just my way of doing things business wise. And it's worked for me too in real life. And I had to learn this the hard way, so it's beaten into me now, which I consider a good thing. The phrase 'if it ain't broken, don't fix it' does actually have some meaning to it. And this way of doing things for me ain't broken, so I'm not going to try and fix it. God's Peace

[Anonymous]

QUOTE: Originally posted by tormadel

I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

Heres one simple beauty about SD40s and shortline start up: If you get a good deal on 1 or 2 or 3 or how many involved. And if the per-axle weight of them is reasonable for the line being purchased. And you buy them, and then turns out ya got too much juice for the operation, then what was originally estimated/planned. Ya go the deturbo route. Now about this comment of SD9s not being able to cut the mustard? Examples are still ABOUND, of SD9s cutting the mustard to this very day.
And older SDs are pretty darn cheap these days, but the loco market is always a changing. Right now, serviceable SD40-2s can be had for deluxe pick up truck prices. But after watching ( and studying the past history of the diesel loco market for 15 years now ), there are no guarentees on the used loco market prices. The only guarentee, is that used locos ( especially and most practicaly EMDs ) can be rebuilt, upgraded, and modified. And last I knew, there were only roots blowers available for HP capacity of only up to 3000horses. But with a flood of SD50s on the market, and they are out there now indeed, deturbo'd SD50s could be more attractive and practicle to the shortlines, bantam shortlines, and regional roads.

[Anonymous]

QUOTE: Originally posted by SD38SD39locomotives

because I've seen too many so-called "professional" operations fall apart in the past around this part of the country.

I need to quick rephrase my post. I meant operations as in businesses in general.

[Anonymous]

My number one question: To protect my investment, are these voting shares? If not, I would never invest in this type of venture!

Best regards,
Swafford

[Anonymous]

Just had another thought, in the start-up cost, I would suggest budgeting additional money:
1. IT Department for accounting, website, customer portal for tracking of shipments. In this case, then you would need an IT Manager added to the payroll as well as computer equipment hardware and software.
2.Marketing Manager to increase revenue stream.

Best regards,
Swafford

[edblysard]

Hey guys...
Take a step back for a second.
You are looking at a 32 mile short line that hauls woodchips and finished cardboard, a few inbound chemical tanks for both, and a twice weekly coal move.
It will run at restricted speed, GCOR rule 6.27, see below.

6.27 Movement at Restricted Speed
When a train or engine is required to move at restricted speed, movement must be made at a speed that allows stopping within half the range of vision short of:

Train
Engine
Railroad car
Men or equipment fouling the track
Stop signal
or
Derail or switch lined improperly
The crew must keep a lookout for broken rail and not exceed 20 MPH.
Comply with these requirements until the leading wheels reach a point where movement at restricted speed is no longer required.

Depending on the track condition, max speed will be 20mph, if it is all FRA exempt 10 mph max.

GCOR.
6.12 FRA Excepted Track
On a track designated as "FRA Excepted Track" the following will govern:

Maximum speed must not exceed 10 MPH.
No revenue passenger train will be operated.
No train will be operated that contains more than five cars placarded according to Hazardous Material Regulations.

Also keep in mind that this is a small group of people, everybody will have double duties...management will be a hands on thing, most of them will run some of the trains in-between their other duties, everyone will learn how to tighten joint bar bolts and lube switches.

It will not need a big accounting department, nor a web site, the GM and Super will double duty as sales reps and business recruiters...the computer, if it even has one, will use pre existing software that NS and CSX already use, for car tracking and routing/billing.
If not, most of us remember how to hand write a switch list and train sheet!

There is no signal system; it will work on RTC, (radio traffic control).

An SD50 is extreme for this.
Best bet would be if you could beg a pair of MP15DCs, a pair of GP38, and a pair of SD40-2s for the coal moves.
Depending on how the coal moves expand, it might use the class 1 power to serve the power plant and mines...if not, the SD40s will be in dedicated service there.
Two of them, because with a 80 car coal move, if one craps out, the other one can still pull the move.

The car department and mechanical department will be a small group of guys who will do double duty as welders and MOW in a pinch.

Don’t over blow this, your talking about a non union shop and T&E, where everybody has to do multiple tasks to make it work.

As for SD9s, I doubt you can find any left you would want…the only one I have seen in regular service is on the BNSF, still in BN green and black, it is a former Great Northern unit, and I doubt you would want to try and get parts for it.

The only reason it hasn’t been scrapped is because it is a shop favorite, along with a pristine pair of Santa Fe GP30s, which are shop queens at South Yard.
The Chief mechanical office just doesn’t have the heart to scrap them.

Ed

[MP173]

Boy, I have missed a great thread. My compliments to everyone on this for a really great discussion. I dont know too much about the mechanical aspects of railroading so I wont jump into that.

Here are my questions:

1. This is an interesting discussion, but a horrible investment. 1000 shares @ $10,000 = equitiy of $10,000,000. What exactly is that $10,000 going to get the shareholders? A railroad that generates $1,400,000 the first year and possibly $2,620,000 by year 5. An EBITA of $740,000 in year 5 would result in ROE of what, perhaps 4%. Right now I can get Treasuries with NO RISK yielding more than that.

2. What exactly would one purchase for $1.2 million? Just the rail line? No equipment with that? Where does the other $8.8 million go? I noticed there is an investment banker on the list of investors/board members. What kind of fees are involved with this?

3. I assume with the huge difference between purchase price of $1.2 million purchase price and the $10 million of equity there will be other purchases. I am very reluctant to invest without a track record of the money folks. Just what else are they looking to do? Likewise, with $10 million of money in the cookie jar, who is going to watch the cookie jar?

On a side note...SD38SD39...is the Evansville Western the old IC Mattoon to Evansville line?

ed

[edblysard]

If I read the original few posting correctly, the big pay off are the two coal mines coming on line...and note that the coal is both power plant grade, and metallurgical grade, so at least one of the coal moves will be to interchange, not in captured service to the power plant.

Although LC stated this was all a hypothetical concept, it sure sounds like it is based on a existing road, and he has put quite a great deal of thought into it...as for risk, not much is risk free any more, and if this does pan out, the initial investors will make out fairly well in the next five to ten years.

If it was a real deal...I would seriously consider ponying up 20 grand and might even think about moving out of the swamp and switching railroads...rivers have backwaters too!

Ed

[MP173]

Ed:

There has to be more to it than this....you dont invest $10 million to purchase a $1.2 million railroad.

but it is a fun concept.

ed

[MichaelSol]

Trying to figure out startup costs on something like this.

One more:

The environmental assessment. These can cost between $20,000 and $140,000.

Cars. Shipper owned? Purchased? Leased?

Operating Costs:
Liability insurance, about $50,000. Combined with real property taxes at 50,000, ouch, already at $100,000. Might have to go with SD38SD39locomotives on doubling that general operating cost estimate.

Business Plan for the 30 mile Santa Cruz Railway of similiar scope, but also passenger service:

http://www.sccrtc.org/pdf/RecRailBizPlanReport.pdf

Best regards, Michael Sol

[jeaton]

Face it. This is fun, but what we are doing here is nothing more than a "back of the envelope" exercise. One thing I know. If I did a back of the envelope analyses on a prospective business venture and thought I better put in a 100% contingency for cost, I would also decide that I lacked a basic knowledge of the business I was looking at and would be a fool to proceed.

On the other hand, I started my own business with not much more than a page of hand written notes including a couple budget estimates covering the range of business I expected. I was quite accurate with my projections and in the 12 years that the business has existed, I have never had an expense item that ran off the chart.

And like almost any small businessman, I do every task from house keeping to writing the checks, including the one to myself taking my profits out of the business. One exception-the rest rooms are in the common areas of the office building and the landlord takes care of those. Good thing.

Jay

[tormadel]

QUOTE: Originally posted by SD38SD39locomotives

QUOTE: Originally posted by tormadel

I could see the arguements for lesser power, SD38's or something, but would they really be significantly cheaper? (I don't think there was such a thing as a C23-7 build, and it would probably have some problems like the C30's LC refers too). I'm thinking for the coal hauling we're talking about SD9's wouldn't cut the mustard, or Milwaukee rebuilt SD18s or ICG SD20s. Also a question of what kinds of deals can LC get on longer term leases? Could these lesser units I'm talking about do the trick on a 1 or 2 year lease untill the new traffic warrents the SD40's? Could it be that in those couple years down the road that SD40's won't be available at such a good price? (The SD50 mention pique's my interest, I like alittle variety and something alittle different).

It would sound like that next good question is that trackage rights to the powerplant even a possiblity? We don't want to be choked by the class 1 being tardy about picking up our loads or doing they're share on the unit train. Is the power plant on the main line or another spur? Is purchase of the spur the powerplants on an option? (Class 1 may be more open in negotiation if they would have to short haul themselves otherwise) This could also be effected by the traffic density the class 1 has on these related lines. I'm sure they wouldn't want a shortline mucking around already congested pathways. Are we connecting to NS & CSX mainlines or branches?

Heres one simple beauty about SD40s and shortline start up: If you get a good deal on 1 or 2 or 3 or how many involved. And if the per-axle weight of them is reasonable for the line being purchased. And you buy them, and then turns out ya got too much juice for the operation, then what was originally estimated/planned. Ya go the deturbo route. Now about this comment of SD9s not being able to cut the mustard? Examples are still ABOUND, of SD9s cutting the mustard to this very day.
And older SDs are pretty darn cheap these days, but the loco market is always a changing. Right now, serviceable SD40-2s can be had for deluxe pick up truck prices. But after watching ( and studying the past history of the diesel loco market for 15 years now ), there are no guarentees on the used loco market prices. The only guarentee, is that used locos ( especially and most practicaly EMDs ) can be rebuilt, upgraded, and modified. And last I knew, there were only roots blowers available for HP capacity of only up to 3000horses. But with a flood of SD50s on the market, and they are out there now indeed, deturbo'd SD50s could be more attractive and practicle to the shortlines, bantam shortlines, and regional roads.

Oh I don't mean to talk smack about SD9's, they are good units. I just wasn't sure they were suited to unit coal train service like LC is talking about. They could pull it, but once you got to the class 1's line to head to the powerplant you would be on track (most likely) that's rated for faster then they would go, want something that can perform alittle better. For just running around our line they would be fine. In another thread we talked about how parts for 7 & 9 series models is begining to become a problem so that could be another reason to go with SD40's.

[tormadel]

True it has not yet been discussed if they are common or preferred stock, voting or non-voting. But it was stated that the officers would retain operational control.

Ed- It is good to hear about heart in railroading (ie the Cheif mechanical office), I was disenchanted with railroading for a time because it seemed the heart had gone out of it, but I am seeing things in a brighter light now.

My new little Locomotive roasters book says BNSF still has 53 SD9's and that 2 of them are even upgraded to -3 specs (that sounds like an interesting experiment I wonder how that went). I remember growing up with a bunch of them keeping themselves busy with locals around Lincoln, NE <smile>

[edblysard]

True, but the original owner has already stopped operation a while ago, and is looking to scrap part of the line...for what ever reason, he is calling it quits.
On the other hand, if the coal mines do come on line, it would make a very good, and very quick return.
Even if you only run it for a few years, then close and scrap it.

You’re getting the basic right of way, what track exists, and the few buildings there are...not much else.
So the 10million start up isn’t that far out of line...our MK1500Ds cost almost $500,000. each, and we bough 24 of them in 1996.
That’s 12 million in locomotives alone.


Ed

QUOTE: Originally posted by MP173

Ed:

There has to be more to it than this....you dont invest $10 million to purchase a $1.2 million railroad.

but it is a fun concept.

ed

[tormadel]

We wi***his was busy enough to need 24 loco's thou, hehe.

[MP173]

Ed:

Early posts indicate they are talking about leasing old locomotives, not purchasing.

There has to be more to it than this, otherwise this investment is upside down...investing $10 million for a $1.2 million property.

ed

[Anonymous]

QUOTE: Originally posted by tormadel

I doubt the boardmember(s) are going to work 50hrs a week for$5000 a year. But I would not worry about the others. Getting this company up and started, then keeping it alive will take alot of work. Given these officers back grounds I do not think it's likely that they would shirk they're responsabilites. There is no room in the budget for assistants or the office toady, so it seems set out to me that the whole staff is dedicated to rolling up they're sleeves and doing it all.

I go to work for a couple days, and....

Correct. The Board Member is not devoting his full time attention to the company, he has a full time job. He is compensated for his efforts and financial advice and guidance learned in guiding many companies including railroads.

LC

[Anonymous]

QUOTE: Originally posted by MP173

Ed:

Early posts indicate they are talking about leasing old locomotives, not purchasing.

There has to be more to it than this, otherwise this investment is upside down...investing $10 million for a $1.2 million property.

ed

You guys need to check the facts I set forth in the beginning. I said this was the first property of several. The $1.2Million is the purchase price of the property alone and it is darn cheap by comparison to some I have seen. Equipment give aways are long gone among the Class 1s.

LC

[edblysard]

True,
But you have to
Buy fuel, fix track, and replace frogs (cost out one of those!)
Lease the locomotives; pay to have them brought to you...
Revamp the buildings, purchase some vehicles, (crew van or pick up truck)
Buy spikes, tie plates, ties...get the power/ water/gas turned on, get some form of insurance...the list could go on far a while, but you get the point.

The first thing you must do is get a mudchicken to come out and look it over, tell you what has to be fixed before you turn a wheel, what can wait a month, or a year.
You have to pay your employees, even before some of them step foot on property, no one will show up and put in time with out pay.

10 million will cover most of this and leave you a reserve, albeit not a large one, to cover the unexpected things.

The 1.2 million asking price is the value of the land and the scrap value of the tracks and buildings…not the total “value” of an ongoing enterprise.
We don’t know if the price is only for the ROW, or is there additional property along the ROW, or outside the railroad altogether.
Currently running only part of the railroad to serve the woodchip and cardboard company, the rest is to be scrapped, if I read LC’s comments correctly.

I would surmise the first step is getting firm commitments from the coal mines and the power plant, new interchange agreements from CSX and NS, and a buyer for the metallurgical grade coal.
Sure, it’s a back of the envelope exercise, but bigger and more profitable things have started out as nothing more than an idea in a garage, such as Apple.

(well, see what happens when you go to a ball game and come back and finish a posting!)

Ed

[Anonymous]

QUOTE: Originally posted by edblysard

If I read the original few posting correctly, the big pay off are the two coal mines coming on line...and note that the coal is both power plant grade, and metallurgical grade, so at least one of the coal moves will be to interchange, not in captured service to the power plant.

Although LC stated this was all a hypothetical concept, it sure sounds like it is based on a existing road, and he has put quite a great deal of thought into it...as for risk, not much is risk free any more, and if this does pan out, the initial investors will make out fairly well in the next five to ten years.

If it was a real deal...I would seriously consider ponying up 20 grand and might even think about moving out of the swamp and switching railroads...rivers have backwaters too!

Ed

Ed -

You are correct, the coal increases and additional area reserves is the upside. All of the coal would go offline. Some to the power plant and other to tidewater.

Also, it is based on an actual opportunity I had a ways back. I have changed a few facts to use this as a good hypothetical...

LC

[MP173]

LC:

I did read the facts, however you didnt mention other purchases, only this one. The investment turns from an investment in a shortline railroad into an investment in a portfolio of shortline and more importantly into the abilities of management to identify potential line, negotiate a fair price, operate and manage the line better than others.

At this point my attention would turn from the actual 32 mile stretch of railroad to the people involved that are asking me for money. Do you care to share more on their past successes?

ed

[Anonymous]

QUOTE: Originally posted by edblysard

True,
But you have to
Buy fuel, fix track, and replace frogs (cost out one of those!)
Lease the locomotives; pay to have them brought to you...
Revamp the buildings, purchase some vehicles, (crew van or pick up truck)
Buy spikes, tie plates, ties...get the power/ water/gas turned on, get some form of insurance...the list could go on far a while, but you get the point.

The first thing you must do is get a mudchicken to come out and look it over, tell you what has to be fixed before you turn a wheel, what can wait a month, or a year.
You have to pay your employees, even before some of them step foot on property, no one will show up and put in time with out pay.

10 million will cover most of this and leave you a reserve, albeit not a large one, to cover the unexpected things.

The 1.2 million asking price is the value of the land and the scrap value of the tracks and buildings…not the total “value” of an ongoing enterprise.
We don’t know if the price is only for the ROW, or is there additional property along the ROW, or outside the railroad altogether.
Currently running only part of the railroad to serve the woodchip and cardboard company, the rest is to be scrapped, if I read LC’s comments correctly.

I would surmise the first step is getting firm commitments from the coal mines and the power plant, new interchange agreements from CSX and NS, and a buyer for the metallurgical grade coal.
Sure, it’s a back of the envelope exercise, but bigger and more profitable things have started out as nothing more than an idea in a garage, such as Apple.

(well, see what happens when you go to a ball game and come back and finish a posting!)

Ed

Essentially correct Ed.

The first step is bid for the property or at least discuss it with the owner (Class 1 or otherwise). This will lead to an opportunity to conduct the basic due diligence necessary to construct a bid or offer. This will include an opportunity to hirail and inspect the property (without this, I'm not interested). This also gives me a chance to bring my VP along to inspect (my MC, in effect). The inspection tells me what I need and what I can live with. It also tells me what scrap and spare material is on the property already so I can bargain for it to be included in the purchase. This usually is effective and saves quite a bit of $$. One reason consultants like me can be worth it to aspiring short liners.

As to the RR, we wouldn't plan on scrapping it as the OOS portion will be needed to reach the coal loadouts we are projecting.

I would want to get input and perhaps even some financial help from the coal mining companies in the purchase. I'd look to bring them in for 10% of the investment, about $120,000 or more to help buy the property. This would also sell a few shares. Remember, this little line is projected to throw off a free cash flow of $750,000 or so in 5 years. If you can get three of these going 5 years after starting the last you would have cash flow $2.25 Million, minus any additional staff and growth costs. Probaby in the neighborhood of $2Million. Enough to acquire even more lines and do some upgrading, or even pay a dividend to the shareholders.

LC

[tormadel]

Welcome home LC.

[MP173]

Things are a bit clearer....still, I would want to know more about the principals involved. That is just as important in a project like this as the assets.

BTW...is this an informal solicitation? You have my interest, which is always the first step.

ed