Western Railroad Discussion > McCloud Update

I know many people here followed the "last runs" of the McCloud back in June with much interest. Here is an update on the abandonment case...

Back on 26 June Seaside Holdings (based in Florida) filed a formal Offer of Financial Assistance for the part of the McCloud Railway east of McCloud. The STB determined that Seaside was a "financially responsible party", meaning that the company had the cash flow and the resources to maintain operations for at least two years.

STB regulations contemplate that in a case like this the party filing the OFA and the abandoning carrier will come to terms on their own, and the STB gives them thirty days in which to do so. If the two parties cannot come to terms then either party can ask the STB to set terms for them. If no agreement is reached and if no one asks the STB to set terms then the OFA process ends and the abandonment goes forward.

The 30-day period ended today (26 July 06). Seaside waited until the last day to request that the STB set terms and conditions for a possible sale. Seaside states that the two sides are far apart on negotiating a purchase price. The root of the problem is that there is a three million plus dollar difference between the Net Liquidation Values established for the line by the two parties. The McCloud Railway pegs the Net Liquidation Value for the line east of McCloud at $4.6 million, which includes over a quarter million dollars in marketable fee title for lands held and the rest coming from track materials. Seaside believes the same line is worth a little less than $1.3 million, with all of that coming from track materials as Seaside does not believe that the McCloud Railway owns any land in fee title that can be conveyed to them.

What next? This filing starts a 30 day clock for the STB to issue a decision setting terms and conditions for a sale. This decision should be due no later than Friday 25 August. Once the STB issues this decision Seaside has 10 days to accept or reject the amount set by the board. If Seaside accepts the amount then the McCloud Railway is legally required to convey the line east of McCloud to Seaside for the amount set by the board. Seaside then must operate the line for a minimum of two years, after which time they can either sell it back to the McCloud Railway or pursue abandonment on their own. They must operate the line for 5 years before they can sell it to anyone else. If Seaside rejects the terms set by the STB then the abandonment process continues.

It will be very, very interesting to see what happens next. It will be more interesting to see what happens if the McCloud Railway is forced to sell the line east of McCloud to Seaside Holdings. I wonder if Seaside will be able to get any of the freight traffic back? Will we see an interchange established between two railroads in McCloud? I guess we will find out as things develop.

This case just keeps getting more and more interesting all the time.

Jeff Moore
Elko, NV

Fascinating, Jeff. Thanks for the new info.

--Mark J

With the high price of track materials and unavailability of relay ties, the NLV could easily be established by the McCloud requesting bids from salvage firms like A&K, LB Foster, etc.

I believe the McCloud's valuation is far more correct than anything else.

Jeff,

Thanks for the update. Very interesting. I will miss the McCloud for reasons like this...

Martin

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Thanks for the update, especially explaining arcane STB procedures in easy-to-understand terms.

Seaside Holdings is a couple of airline pilots from Florida with no railroad experience and are really front for A&K Railroad Materials. Seaside has no real intention of operating a going concern business. It is an attempt by A&K to swindle the the owner of the McCloud out of a fair NLV and bank the $3 million difference until Seaside can abandon itself and flip the assets to A&K. At the current price of railroad materials, A&K can easily afford to sit on its investment and triple its return in two years and run few, if any trains in the meantime. This is an abuse of the OFA process.

phlone Wrote:
-------------------------------------------------------
> Seaside Holdings is a couple of airline pilots
> from Florida with no railroad experience and are
> really front for A&K Railroad Materials. Seaside
> has no real intention of operating a going concern
> business. It is an attempt by A&K to swindle the
> the owner of the McCloud out of a fair NLV and
> bank the $3 million difference until Seaside can
> abandon itself and flip the assets to A&K. At the
> current price of railroad materials, A&K can
> easily afford to sit on its investment and triple
> its return in two years and run few, if any trains
> in the meantime. This is an abuse of the OFA
> process.

You nailed it right on the head phlone. I spoke with Jeff Forbis about this very same issue a week and a half ago. It's frightening that our "regulatory" agencies are so clueless that they can't see through this scam. We have more to fear from our own corrupt agencies and a brain dead Congress and Administration than from any international enemy or terrorist group.

newsat11

Martin- Thanks for organizing those trips and sharing your photos. You created a lot of unique opportunities- and images- that otherwise would not have existed.

Phlone- I believe that have hit the nail on the head. I feel that this Seaside Holdings is using the OFA process, or trying to use the process, to get the railroad for a scrapper for much less than they otherwise would be able to obtain it for. If that is the case then this is an obvious abuse of the OFA process.

Either way I feel sorry for the McCloud Railway Company. They have lot their shirts and a whole lot more on the line in recent years. The line almost certainly has no hope for future success. The railroad is being swindled out of its investment and there is basically nothing that they can do to stop it- the regulations assume that Seaside is legit (even if they are not) and will protect them to the end.

If anyone is keeping track Seaside has filed Notices of Intent to File OFA's on abandonments elsewhere, and on Tuesday the 25th they filed a formal OFA on a CSX abandonment in Kentucky. They are not restricting their efforts to just the McCloud.

Jeff Moore
Elko, NV

Who knows, this whole malarky could put the last segment of the railroad out of business at this point.

Sam Reeves
—
http://www.samreevesphoto.com

It may be of interest in this Seaside Holdings discussion, to be aware that the same Seaside Holdings has also filed a notice of intent to file an OFA on a 12.74-mile CSX line in Anderson County, SC, and then, just a bit later, filed the same type of notice of intent to file an OFA on a different CSX line in Harlan County, KY. If they get these two lines, plus the McCloud, and there is precious little to stop this action, the result should be quite some railroad operation.

It is interesting that, so far as I can tell, neither of the two remaining shippers on the the McCloud filed any kind of document supporting continued "operation" by Seaside.

Dicalite is the only McCloud shipper that has even so much as whimpered during this entire abandonment process, and they put up a weak and easily defeated protest that the STB dismissed.

If Seaside takes the line it will be interesting to see how seriously they even try to get any of the business back. That will speak volumes about their true intentions.

Jeff Moore
Elko, NV

Didn't a similar front company try to swipe a long section of the Nevada Northern a few years ago? IIRC This was when the city of Ely was negotiating to purchace the line to the north from LA power and water that somehow got ownership of it. They were ultimately defeated I understand.