(The Palm Beach Post carried the following report from Ted Jackson on its website on February 7.)
BOCA RATON — RailAmerica, the Boca Raton-based short-haul railroader, made two seemingly contradictory revelations Thursday: It will be selling off $100 million in assets to cut its towering debt load, and it is nearing a deal to buy some rail lines from giant Burlington Northern.
Chief Financial Officer Mike Howe says he doesn’t think the two moves are at cross purposes.
“We are making it a priority to cut our debt as a percentage of capital. That’s why we’re selling these assets,” he said. “But our strategy of growth through acquisition remains intact. There are plenty of opportunities out there.”
RailAmerica, which founder and Chief Executive Gary Marino has built into the world’s largest short-haul freight railroad, announced its intention a few weeks ago to sell its Chilean rail line, which is expected to bring in about $20 million.
Thursday’s announcement means another $80 million in assets have been put on the block. Investor relations chief Wayne August would not give details about what assets are for sale, but he said about $40 million worth will be real estate and other nonoperating holdings.
As part of a restructuring plan, RailAmerica said in December it would cut 5 percent of its workers because of weakness in the U.S. economy and reduced operating results in Australia caused by a bad grain harvest.
Howe, who took over the CFO slot after a top management shake-up late last year, wouldn’t reveal the size of the expected transaction with Burlington Northern, which last year announced it would be selling about 3,000 to 4,000 miles of track.
“But we expect this will be a large transaction,” Howe said.
Among 25 acquisitions made over the past 15 years, RailAmerica’s largest has been its $300 million purchase of Texas rail company RailTex in early 2000.
It was the RailTex deal that sent RailAmerica’s debt spiraling upward. The purchase pushed RailAmerica’s debt as a percentage of total capital to 80 percent. Since then RailAmerica, which owns almost 13,000 miles of track, has whittled that figure down to 63 percent.
The company said Thursday its goal is to get the debt-to-capital number down to 50 percent, which RailAmerica says is the current average for the railroad industry. RailAmerica’s total long-term debt is $542 million.
“The debt reduction package was expected and we welcome it,” said UBS Warburg rail analyst Rick Patterson. He added that RailAmerica likely will have a tough year this year before prospects turn brighter in 2004.
RailAmerica (NYSE: RRA) shares barely budged Thursday on news of the debt reduction plan, closing unchanged at $6.13.
RailAmerica stock reached an all-time high of $15.25 in December 2001. About a month later, when a Securities and Exchange Commission filing revealed that founder Marino had sold $4 million worth of company stock, the shares began a steep slide that virtually has been uninterrupted since.