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Second round bids for Dakota, Minnesota & Eastern Railroad (DM&E) are understood to be imminent, as the auction for the company continues marching towards a deal despite fragile credit markets. Class 1 railroads and utilities companies, it was said, retain an advantage in the bidding competition over infrastructure and private equity funds, as the performance of rail is significantly up this year.
A deal is likely to be announced in September, it was said.
This news service previously reported that DM&E had been “satisfied” with first round bids (due 18 May), and that second round bids were to have been due, roughly, in mid-July.
It was unclear whether the staple financing from Merrill Lynch and Citigroup was still in place, or if it had been pulled. However, it is understood that whether the commitment is there or not, strategics, namely class 1 rails, and utilities companies, which have credit ratings of triple-‘B’ or single-‘A’, would not need to use a single-‘B’ staple.
Meanwhile, according to an industry source claiming knowledge of the situation, the bidding for DM&E is nearing USD 2bn while potential suitors could back out of the auction because of credit tightness. He said there is a belief that there is not sufficient access to financing to support loans, adding that the process is not unfolding as well as originally thought.
A second industry source said it was his understanding that Carlyle and Blackstone had been noticeably absent from the auction. Fortress, as previously reported by this news service, is understood to be out of the running for DM&E.
Canadian Pacific Railway, the NYSE-listed class 1 rail, with operations from Vancouver to New York, was said by the first source claiming knowledge to be a potential DM&E buyer. Canadian National, he speculated, could also show interest.
It is unclear whether Kansas City Southern, the US-based class 1 rail, remains in pursuit of DM&E. However, this news service previously reported that the company was among the strategics showing interest in DM&E, as it has a non-overlapping end-to-end fit with it.
First Reserve, the energy focused private equity fund declined comment when asked if it would be interested in pursuing DM&E in an earlier report.
Burlington Northern Santa Fe (BNSF) and Union Pacific (UP), two US-based class 1 rails, were not bidding for DM&E, it was determined, to avoid potential DoJ issues.
On 26 February, as previously reported, DM&E was denied its FRA Railroad Rehabilitation Improvement & Financing loan application requesting USD 2.5bn to build the PRB line: an upgrade project that will rebuild 600 miles of DM&E track and add 260 new miles of main line construction to coal mines in the Powder River Basin of Wyoming.
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