Railroad finance in a recessionary period: making money the hard way - by earning it - 1991 Rail Finance Review and Desk Book

Railway Age, Dec, 1990 by Anthony D. Kruglinski

Railway Age's collaborative editorial effort with Railroad Financial Corporation - The 1991 Rail Finance Review and Desk Book comes at a time of special challenge for professionals that make their living serving the credit needs of the railroad industry. Generally in a recessionary environment, it's the condition of the borrowers that commands most of the attention. Whose traffic is off?. By how much? What effect is the economic climate likely to have on specific on-line shippers? However, this economic weakening comes at a time of trial and tribulation for the nation's banking system.

Already coping with issues relating to foreign loans gone south (literally and figuratively) and shadowed by the S & L crisis, America's bankers are struggling with special regulatory rules for so-called "Highly Leveraged Transactions."

By labelling a group of borrowers as HLT's" and segregating them for special regulatory inspection, the regulators have sent a not-so-subtle signal to lenders to beware of unbridled lending to the group as a whole. The situation is worst at institutions that have suffered losses or that expect to suffer losses as a result of loans to so-called leveraged buy-outs or "LBOS" made in the late 1980's. What does all of this have to do with railroad finance today? Let's ask - and answer - a few questions:

Are most of the loans made in the last 5 years considered HLT's ? Yes.

Have any sizeable ones gone bad? Yes, two (the CM&W/South Shore and the CCP).

How much money has been lost? We're not sure, but feel a good guess would be between I % and 3% of actual monies loaned to the group as a whole.

Have any equipment lenders lost money? With possible rare exception we believe they have not.

Are railroad industry borrowers feeling a pinch as a result of the overall lending climate? Yes.

At Railway Age we have always felt that the best loans (and leases) are those made by lenders and lessors specializing in the railroad finance industry. These financial professionals gain significant industry knowledge as they go about their work and develop the confidence that is vital in making decisions and communicating these decisions to others. In a way, that's why we go to the trouble of compiling this Desk Book.

We feel it's worth noting that in a recessionary period, in a period where financial regulators are raising a deafening crescendo on the evils of HLT lending, our Desk Book for 1991 lists more than twice the number of financial professionals dedicated to rail industry specialities as last year's edition. We're also pleased to present for the first time a companion listing of accounting, legal, consulting and appraisal professionals serving our industry.

We hope you'll read this year's Rail Finance Review and Desk Book from cover to cover and keep it for future reference. (It pulls out!)