Federal Railway Administration Nixes DM&E Loan

The Federal Railway Administration today turned down a requested $2.3 billion loan for the DM&E railroad, based in Sioux Falls, S.D. Below is the FRA statement, released this afternoon:

Monday, February 26, 2007 (Washington, DC) Federal Railroad Administrator Joseph H. Boardman today denied a $2.3 billion Railroad Rehabilitation and Improvement Financing (RRIF) loan application from the Dakota, Minnesota, & Eastern (DM&E) railroad concluding it posed an unacceptably high risk to federal taxpayers.

In a decision released today, Boardman found that while the Powder River Basin project met some of the RRIF program’s statutory requirements, there remained too high a risk concerning the railroad’s ability to repay the loan even with an appropriate combination of credit risk premiums and collateral.

He said he was concerned by several factors, including the DM&E’s current highly leveraged financial position; the size of the loan relative to the limited scale of existing DM&E operations; and the possibility that the railroad may not be able to ship the projected amounts of coal needed to generate enough revenue to pay back the loan.

In addition, Boardman cited concerns that the application did not sufficiently address how the railroad would handle potential cost overruns and schedule delays with the Powder River Basin construction project.

Boardman reached his final decision after reviewing the DM&E application using the criteria set by Congress for the RRIF loan program and following an environmental review of the proposed project.

DM&E had applied for the RRIF loan to finance construction of a new 280-mile rail line to Wyoming’s Powder River Basin coal mines and to reconstruct approximately 600 miles of existing track in South Dakota and Minnesota.