Tuesday, March 29, 2016

Canadian Pacific, Great Lakes Basin, and the Drama of the Rail Industry

If you had 8 billion dollars and wanted to invest it in the rail industry, would you buy stocks in Canadian Pacific Railway, some other railroad, or build your own shoreline railroad around Chicago?

While brushing up on the latest in the rail industry, there’s a couple numbers that don’t seem to add up.  I’m just a simple farmboy whose resume includes the fourth ranked party school in the nation at the time of my graduation.  Corporate financing is not my strongest subject matter.  Maybe someone can help explain this.

Canadian Pacific Railway has made an offer to buy Norfolk Southern for 27 billion dollars.  Norfolk Southern’s CEO has stated 45 billion wouldn’t be enough and more or less told Canadian Pacific to go pound sand, but Canadian Pacific is taking the issue to NS shareholders for a proxy vote.  It’s odd enough the sixth largest railroad wants to buy the third largest with Norfolk Southern being roughly twice the size of Canadian Pacific.  Nevertheless, the offer is 27 billion on the low and 45 billion on the high end. 

Frank Patton who wants to create a shoreline railroad says it will cost 8 billion for a 278 mile railroad from Northern Indiana to Janesville, Wisconsin.  Frank Patton supposedly has 14 investors for this speculation project.  27 Billion is the offer for the third largest railroad in North America behind Union Pacific and Burlington Northern Santa Fe and 8 billion to build a 278 mile shortline. 

This blog is by no means Barron’s, the Financial Times, or the Wall Street Journal but it’s my opinion either Frank Patton or the CEO of Canadian Pacific is out of their minds.  (Maybe both of them)   Either Canadian Pacific’s offer of 27 billion for the third largest railroad is absurdly low or there is no possible way for a reasonable payback on a loan to build an 8 billion dollar shortline around Chicagoland. 

When comparison to 27 billion for Norfolk Southern, you don’t even have to know the specifics about rail tariff rates to figure the return on an 8 billion dollar investment in a shoreline bypass is probably terrible low.  Clearly Patton’s shortline dream is going to require a federal guaranteed loan, meaning should Great Lakes Basin go bankrupt and become insolvent, the federal government will cover the loan to the banks.  Again, without knowing the specifics other than a measly shortline cost 8 billion to build and Norfolk Southern could fetch between 27 and 45 billion, I’d have to question the wisdom of the federal government cosigning an 8 billion dollar loan.

Again, if you had 8 billion dollars and wanted to invest it in the rail industry, would you buy stocks in Norfolk Southern or build your own shoreline railroad around Chicago?  8 billion buys you more than a quarter of the third largest railroad in North America. 

It’s a no brainer.  Unless you have somebody with a lot of knowledge in managing a railroad backing you up, the wise investment is to buy the stock in the existing railroad.  Kind of makes a guy wonder…who is really the money behind Frank Patton and Great Lakes Basin. 

Friday, March 25, 2016

Who is the money man behind The Frank Patton Railroad (GBLRR)

So who is financing Frank Patton’s dream of the Great Plains Basin Railroad?  It’s an eight billion dollar project.  Patton is not known to be a billionaire and questions are arising who is financing this operation.  Frank, if you're smart you wil disclose these 14 financiers before this train of your runs off the end of the tracks.

 Regardless of who might be financing this ride, one thing is for certain.  Union Pacific isn’t funding this railroad dream.  If you haven’t read the Chicago Tribune article about the speculation capital shortline that desires eminent domain, the Union Pacific spokesman provided an interesting quote.

Chicago Tribune  March 21,2016

But Union Pacific said Monday that, "after carefully reviewing the proposal, Union Pacific determined in July 2014 that it was not interested in moving forward with a discussion on the Great Lakes Basin Railroad's bypass project."
"We have repeatedly communicated this position to Great Lakes Basin's leadership team," Union Pacific spokeswoman Calli Hite said. "Union Pacific is focused on several major public-private partnerships, including CREATE, which will benefit the region and enhance efficiency for Chicago-area and regional railroad operations."
CREATE, or the Chicago Region Environmental and Transportation Efficiency program, is a partnership between the U.S. Department of Transportation, the state of Illinois, the city of Chicago, Metra, Amtrak and the nation's freight railroads to improve rail line efficiency.

People like Patton pedaling snake oil, or a speculation capital project always makes it sound like their proposal is the only reasonable idea out there.  They sell politicians on the projects with their “entrepreneurial spirit” and their “vision”.  Entrepreneurial spirit like this starts with obtaining someone’s land through eminent domain, having a contiguous easement, then selling the “asset” to the highest bidder. 

Well, that was the Clean Line Energy Plan for a Merchant Transmission Line, similar to Pattons’ railroad model.  Have a nice song and dance about a dream, then flip the right of ways as soon as possible.  Here’s a tip Frank.  Do not have an option to sell the project before obtaining the easements.  At the very least, get the green light to file in the courts for eminent domain condemnations BEFORE you sign an option to sell the project. 

Frank, you’re probably going to want some operating cash and it will be tempting to sell an option to buy the Great Lakes Basin Railroad  for ….perhaps forty million dollars, but don’t do it.  Taking the money for an option to sell the easement is going to look bad and screw up your attempts to look like a legitimate shortline railroad.

One other thing, Frank.  Sooner or later you are going to have to disclose who your financial backers are.  Maybe it is best to call them your “partners”.  For the time being, this railroad with no tracks or loco in not much more than a three man operation so it’s probably best to refer to them as financial backer than partners.  Regardless, sooner or later they will have to come out of the shadows.  It’s probably best you bring them out of the closet sooner than later. 

Hiding the name of the money man only makes a speculation capital project look weak. 

The longer you keep them hidden, the more these angry farmers will drive the lack of transparency home.  You’re going to hear accusations that this rail-less railroad doesn’t have the financing to run a railroad and to be honest, it’s a legitimate accusation.  The best thing you can do as boss of this railroad is to tell the public who is supplying you with money.   Do it soon before this train loses traction.    As CEO of this proposed railroad, once it is perceived that your primary interest is obtaining the easement, it becomes an uphill battle to claim legitimacy.    Get in front of this issue Frank.  

Most every article read about this speculation project mentions the identities of the investors are not being disclosed.   Just today, The Times is Ottawa is doing an article and states;

Great Lakes founder and managing partner, Frank Patton, told the Chicago Tribune that 14 investors have committed to the project. The identity of those partners have not been released.

It is interesting the Chicago Business Journal has a vastly different report on this issue.  They make it sound the railroads are financing, cooperating , and perhaps supporting Frank Patton’s railroad. 

 Chicago Business Journal March 23, 2016              

Developer Great Lakes Basin Transportation has long touted its private financing and cooperation from Union Pacific (NYSE: UNP), BNSF Railway, Norfolk Southern (NYSE: NSC), and CSX (NASDAQ: CSX), the Chicago Tribune reported. Some estimates indicated a train could use the proposed bypass around Chicago to go from Indiana to Wisconsin in eight hours, instead of the 30 hours it sometimes currently takes, the report said.

But now, with Union Pacific choosing to back out, the funding for the $8 billion project may be in question, the report said, since Great Lakes hasn’t divulged the sources of its funding.

This article sounds as though Union Pacific is just now backing out from supporting the Great Lakes Basin Railroad.  Interesting, the Tribune specifically states UP has opposed this alternative since 2014.   Union Pacific has their own reasons for not supporting this proposed project, but it’s not surprising they want nothing to do with Great Lakes Basin Railroad.  Regardless, it’s not just a bunch of ticked off farmers who have concerns about the GLBRR mysterious financing.  It’s a legitimate concern.  

Wednesday, March 23, 2016

Meet Great Lakes Basin Railroad, Frank Patton & the DeKalb County Bypass

When a group of farmers, landowners, and residents first me in Mendota to oppose a powerline from Spenser, Iowa to Channahon, Illinois, it was acknowledged more proposed eminent domain projects are coming.   That was some prophetic advice.  More people are coming seeking easements through farmland for their personal gain.  Not only actual utility companies but more venture capital projects who see the cost of obtaining easements through farmland and flipping the projects to the highest bidder as a quick dollar.  The Rock Island Clean Line was just the beginning of venture capital speculation projects seeking eminent domain throughout the Midwest.    Meet the Great LakesBasin Railroad, the new speculation project that wants eminent domain authority to build its project. 

Frank Patton is a retired banking software saleman.   He wants to build a railroad through northwestern Indiana into Illinois.  To the best of knowledge, he has never ran a railroad or been employed by an existing railroad beyond his grandchildren's Thomas-The-Train Set.  The railroad would hook through the center of Illinois and cross the Illinois River at Seneca.  The Railroad would meander up to Earlville where it would shoot north and proceed up to Wisconsin at about Janesville.    The estimated cost of this shortline railroad would be about $8 billion. 

So who is funding this shortline railroad? 
Not Union Pacific

Frank Patton will not tell the public who his financial backers are.  Maybe he has $20 billion in his 401k and wants to create an eight billion dollar railroad.    Seriously, Who has 8 billion sitting around to invest in a startup shorline railroad?  There are only a handful of people in America with that kind of money.  More likely he is just a front man for someone else’s money.  So who are his investors? Your speculation is as good as anyone’s?   Could it be Warren Buffet?  Doubtful.  He already owns a railroad. 

Could it be George Soros? 
Could it be Michael Zilkha? 

Only Frank Patton knows who his friend is and he isn’t talking, at least to the public.  It wouldn’t be surprising if behind closed doors Frank Patton discloses the names of his partners to government officials to look impressive but so far Frank Patton only says he has help.

If Frank Patton, a retired banking software salesman, is just a friendly face for other people who will own and operate this railroad, he’s just as much a strawman.  In all likelihood, eminent domain will be involved.  Homes will be possessed and demolished.  Affected residents deserve the right to know who will be taking control of their private property.

Then there is the fact that Frank Patton’s has been building his railroad since 2013.  Again, in all likelihood eminent domain will be used to acquire these properties.  Just like other speculation projects, Great Lakes Basin Railroad (GLBRR) has been working with and talking to federal, state, and local.  There have been stories going back to 2013 that Patton has been “developing” this eminent domain project.  Yet, landowners have not been notified.   The Department of Transportation’s Surface Transportation Board has environmental scoping meeting scheduled in Illinois for next month yet affected communities are largely just finding out about this project.

How long have Patton been working with or partnering with federal, state, and county politicians and bureaucrats for a speculation project with a high degree of failure?  How many landowners discover a railroad is being proposed through their backyard via Facebook?  In the meantime Washington bureuacrats wonder why America hates them so much.  Many of us see it as an ethic violation when government employees conspire with venture capital in deals that involve eminent domain. 

Call it what it is.  They are not “meeting” with government agencies, committees, or boards.  They are “conspiring”.   Speaking of conspiracies.  Look at this map of the proposed route.  Seems strange that GLBRR is avoiding DeKalb County.  Below is the map included in the recent Chicago Tribune articleMakes a person wonder if locally elected officials in some counties are easier to work with and more “agreeable”.  How are people supposed to feel when their home could be demolished because it was more lucrative or the path of least resistance to avoid a specific county? 

Look at the Chicago Tribune's map.  The proposed line goes out of the way to the west and up the county line, then back to the east just inside the Boone County border.  What’s going on here?   It's not hard to draw a logical conclusion someone powerful enough to shut this project down lives on DeKalb County or perhaps has farmland in DeKalb.  It's a logical conclusion when you see the Eminent Domain Pornography like the map above.

Let's not go down the road where landowners try to push projects such as this on someone else's property.  When project developers commit the sins of choosing a path of least resistance like this, projects deserve to die.  Morally corrupted people such as Frank Patton have no business working in the delicate field of eminent domain.  

Frank, who is your friend in DeKalb County?  Whoever it is, they probably think they are very powerful in Illinois politics.  Not implying political payoffs, but this map wasn't drawn with a crayon.  There is a reason all of DeKalb County was avoided.  

 Are there issues with the Chicago rail region?  From all accounts, yes.
Are there several potential solutions being proposed?  Yes.  
Are there people attempting to work outside the established railroad & transportation organizations to push their projects for their profit?  Sure looks like it.  

When one company has been working with the government for several years attempting to sell the project that means 278 miles of eminent domain, yes, landowners and residents will be skeptical.  When your starting eminent domain projects such as this, honesty is key.  When landowners are shut out of the process for 2 and a half, three years and maybe longer, there is a pattern of deceit.  Landowners and residents should have been brought to the table much much earlier.