About Rail America.........

[pcc@ocean.com.au (Les Brown)]

Gleaned this little gem from Forbes.com. 
http://www.forbes.com/forbes/99/1018/6410142a.htm
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Rail Ties 

By John Gorham 

TALK ABOUT FLYING BY THE seat of your pants. Gary Marino, chief
executive of RailAmerica, was gleeful when he learned last February
that his tiny short-line railroad had won the bidding contest for
V/Line Freight, a 3,000-mile rail network that Australia's Victoria
state government was auctioning off. His $103 million cash bid had
beaten out competing offers from other, far larger U.S. companies. But
there was one catch: Instead of the $10 million down payment Marino
had expected, the Aussies wanted a $20 million deposit within ten days
or the deal was off. RailAmerica had just $10 million in cash on hand
at the time. Marino swallowed hard. "We had never paid $20 million for
a deal, much less a deposit," he says. 

Marino quickly called some of his shareholders and convinced them to
buy a $12 million private placement of convertible preferred stock to
help cover the down payment. To finance the debt portion, Barclays
Bank at the last minute gave RailAmerica a $100 million bridge loan.
Terms were steep: The loan's interest rate started at five percentage
points above Libor, or about 10% at the time, and increased half a
point every 90 days. Moreover, to close the deal, Marino had to give
the bank warrants for 750,000 shares--about 7% of the company. 

Did Cornelius Vanderbilt have to work so hard to finance his
railroads? Marino has paid for most of his growth--turning 180 miles
of rail lines into 12,000 in under five years--with a patchwork of
private placements, done mostly through a small Dallas brokerage
called First London Securities (whose clients have included a pawnshop
and something called Oasis Car Wash). Result: RailAmerica is carrying
$190 million of long-term debt, balanced on just $65 million in
shareholder equity--compared with a ratio of less than one for close
competitors RailTex and Wisconsin Central Transportation. 

The son of a small-town entrepreneur who made ladies' raincoats,
Marino, now 55, was a commercial loan officer for ten years, then
dabbled in Florida real estate. He got into railroads at the urging of
his brother John, a train buff. "I was a finance guy who looked at
railroads pragmatically," he says. "There was no romance involved." 

But plenty of risk. In the past year RailAmerica, with 1998 revenues
of just $77 million, has bought $200 million worth of railroads in
Canada, Australia and Chile to go with its 1,000 miles of U.S. track.
ING Barings analyst Douglas Rockel expects revenues and earnings this
year to more than double, to $173 million and $11 million,
respectively. Wall Street has pronounced the company a growth stock;
over the past 12 months its shares have risen 70%, to $10, handily
outpacing its U.S. competitors. Some accuse Marino of overpaying for
his acquisitions; others are plain jealous. Snipes rival Ronald
Rittenmeyer, chief executive of RailTex: "He's either going to do
really well or get his clock cleaned." 

In today's anything-dot.com frenzy, it's odd to find a gambler in
short-line railroads, which haul bulk commodities like coal, iron and
grain short distances to connect with national rail networks. With
freight rates only inching up, it's not a high-growth business;
RailAmerica's freight revenues (on a same-track basis) are growing
about 8% a year in North America. But operators like Marino have an
important advantage over his bigger, long-haul brethren: He doesn't
have to stare down fractious U.S. unions. Fuel and labor costs soak up
only 20% of revenue, against 38% at Norfolk Southern. 

Marino thinks his greatest opportunities lie overseas. Many countries,
including Mexico, Australia, New Zealand, Brazil and Chile, are
privatizing railroads-enterprises that for years have employed
thousands of people in what amounts to government-sponsored workfare.
But because most lines have never made money, unions are relatively
tractable. In both Chile and Australia, Marino has been able to slash
the work force by at least 40%. Then it's a matter of courting new
business by providing rates competitive with trucking. 

It's the same strategy Marino used the first time around, in 1986. He
and his brother plunked down $150,000 in cash and borrowed $1.4
million to acquire a 180-mile grain-hauling railroad in eastern
Michigan, along with three 1960s-era locomotives from CSX. By cutting
payroll costs and overhead and signing up new customers, they eked out
a small profit on $1 million in revenues their first year. They limped
through the next few years, raising $3 million in a 1992 public
offering. RailAmerica's fortunes improved when it acquired
Kalyn/Siebert, a profitable truck trailer manufacturing business in
1994. With banks more willing to lend him money, Marino acquired seven
small U.S. railroads over the next two years--then started hunting
abroad. 

So far, so good. Revenues at the Chilean line, Empresa de Transporte
Ferroviario, should reach $20 million this year, double what they were
in 1997. The operations in Australia are poised to grow 25% in 1999;
those in Canada, 15%. 

If he pulls it off, Marino, whose 7% stake is currently worth some $3
million, including options, makes a killing. If not, his creditors
will get the lion's share of the loot. 
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Did I see right? 
"The operations in Australia are poised to grow 25% in 1999"
Good luck, mate, there's less than 3 months left of 1999

You're in especially for a fun time, Rod.

Les Brown