RailAmerica IPO's Sluggish Debut

The RailAmerica (RA) IPO priced at $15 on Monday, below its estimated range of $16-$18. The stock continued to disappoint yesterday when it closed at $13.75. According to The Wall Street Journal, "the deal's performance could make it harder for a growing pipeline of other private-equity-backed companies to negotiate the recovering IPO markets..."

Fortress Investment Group LLC (FIG), continues to own a majority stake in RailAmerica and increased the amount of shares it sold in the IPO by one million, for a total of 11.5 million shares. The IPO closes October 16. The company is an owner/operator of short line freight railroads in North America.

Business Overview (from prospectus)

We believe that we are the largest owner and operator of short line and regional freight railroads in North America, measured in terms of total track-miles, operating a portfolio of 40 individual railroads with approximately 7,500 miles of track in 27 U.S. states and three Canadian provinces. Our railroad portfolio represents an important component of North America’s transportation infrastructure, carrying large quantities of freight for a highly diverse customer base. In 2008, our railroads transported over one million carloads of freight for approximately 1,800 customers, hauling a wide range of products such as farm and food products, lumber and forest products, paper and paper products, metals, chemicals and coal.

Offering: 22 million shares at $15 per share. Some of the net proceeds of approximately $144 million will be used to redeem up to $74 million aggregate principal amount of the company's senior secured note.

Lead Underwriters: J.P. Morgan (JPM), Citi (C), Deutsche Bank (DB)

Financial Highlights:

Operating revenue decreased by $48.7 million, or 19.1%, to $206.5 million in the six months ended June 30, 2009, from $255.2 million in the six months ended June 30, 2008... Non-freight revenue increased by $6.8 million, or 22.6%, to $36.9 million in the six months ended June 30, 2009 from $30.1 million in the six months ended June 30, 2008... Operating expenses decreased to $161.2 million in the six months ended June 30, 2009, from $214.0 million in the six months ended June 30, 2008...

Competitors:

Short line and regional railroads compete against each other and other forms of freight transportation based on cost, location and service. The cost of transporting goods and services via different forms of freight transportation is a major factor in determining which means of transportation a shipper will utilize. With respect to location, potential customers often experience geographic constraints that significantly impact the relative freight transportation costs of different alternatives. For example, a shipper can be constrained by railroad’s trackage, accessible waterways, access to pipelines and proximity to airports. As a result, short line and regional railroad operators often evaluate the feasibility of other forms of freight transportation available to a customer when developing their rate and service offerings.

Additional Resources:

• Company website
• MarketWatch: 'RailAmerica IPO 10.5 mln shares priced at $15'
• BloggingStocks: 'RailAmerica IPO loses steam'
• Wall Street Journal: 'RailAmerica IPO Augurs Ill for Buyout Exits'

Comments

[stink726:]

Thanks for the article

Oct 14 12:44 PM

[manya05:]

As if you needed any more proof of the hate-hate relationship of America with the railroads. As with GM, once the generation that grew up with trains dies off, the extinction of railroads in America will be complete.

Oct 14 01:53 PM

[andruomail:]

If you have freight to pull, how can you hate a railroad?

Oct 14 08:55 PM