Texas Mexican Railway: bridge to opportunity

Railway Age, March, 1997 by William C. Vantuono

U.S. and Mexican Customs personnel currently staff the international bridge, as does the U.S. Border Patrol. But beginning about mid-year, their respective roles will be reduced, partially due to efforts on the part of both countries to improve the flow of goods cross-border. Customs and the Border Patrol will cease operations on the bridge, and will instead monitor shipments via EDI. Tex Mex, in turn, will provide additional "sanitary" areas, secure tracks where Customs can pull cars for inspection.

U.S. Customs, says Fields, is trying to be less of a hindrance to cross-border operations. If a car needs to be pulled and inspected, Customs can usually provide a turnaround time of no more than eight hours.

Start-up of TFM operations is not far away. TFM has now entered into a formal agreement with the government of Mexico to purchase the Northeast concession, and has deposited an initial installment of $560 million with the Mexican government, with the remainder of the $1.4 billion purchase price to be paid by July 16. Morgan Stanley has committed $875 million in financing for the transaction, including a senior bank facility and a high-yield bridge loan facility that, with $600 million in equity contributions from KCSI and TMM, will fund the entire purchase price (including $75 million in start-up and bidding costs). TFM says it anticipates making a high-yield bond offering to be used in place of the bridge loan.

In addition, the Mexican government, which retained a 20% equity interest in the concession (an interest it plans to sell off through an initial public offering in Mexico), has invested a separate $200 million in TFM that will help provide working capital for planned improvements to the Northeast Railroad. Structured in a form equivalent to preferred stock in the U.S., the government's shares can be bought back by KCS and TMM between the fourth and seventh years of the concession.

LOOKING AHEAD

What may the future hold for Tex Mex, the one-time "salt water to prickly pear" operation, as Larry Fields likes to say? It may yet become another fallen flag, but with good reason: With the changes taking place, and with the growth that is more than likely to occur, "we'll probably lose the Tex Mex identity somewhere down the line," Fields says. "But I think that will be a good thing for Tex Mex, our employees, our customers, and for Laredo."