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.

Rochester Coalition Sues Federal Railroad Administration over DM&E Documents

by Leigh Pomeroy

The Rochester Coalition and the Mayo Clinic filed suit today in U.S. District Court, Washington, D.C., asking the Federal Railroad Administration to turn over documents related to the DM&E railroad requested in a Freedom of Information Act filing made by the group 10 months ago. By law the FRA was supposed to respond within 20 days of the original request.

The FRA finally answered the Rochester Coalition six months after the April 2006 FOIA request, saying that it had located the documents but could not release them until the DM&E reviewed them for trade secrets. The FRA gave the railroad until Nov. 20, 2006, to complete the review. To date, the DM&E has not responded to the FRA's request and the FRA has yet to release the documents to the Coalition, which triggered the lawsuit.

"The public needs to be able to see what the Department of Transportation is doing with hard-earned taxpayer funds; currently there is absolutely no transparency in this process," said Stephen Ryan, legal counsel for the Rochester Coalition and the Mayo Clinic. What the Rochester Coalition wants to know is "who owns the company" and other basic financial information, said Jake Reint, spokesperson for the Coalition.

The DM&E is requesting a $2.3 billion unsecured loan from the FRA for a railroad expansion project so that it can haul coal from Wyoming to markets in the Midwest. The railroad currently has revenues of about $200 million per year and services South Dakota, southern Minnesota and northern Iowa.