Ran across an interesting piece earlier this week that raised some more questions about DME's ability to service that $2.5 billion loan which when added to the $233 million they borrowed a year ago adds up to $2.7 billion long term debt. The thrust of the piece centers on the annual revenues of the big railroads and the ratio of those revenues to their long term debt. Here are the numbers�
DME and ICE�I believe I read $180 million revenue for the two in a newspaper article about their merger a few years ago($60 million for DME and $120 million for ICE).
BNSF�2005 revenues of $12.987 billion. Outstanding long term debt of $6.516 billion.
UP�2005 revenues of $13.578 billion. Outstanding long term debt of $6.816 billion.
Norfolk Southern�2005 revenues of $8.527 billion. Outstanding long term debt of $6.930 billion.
CSX�2005 revenues of $8.618 billion. Outstanding long term debt of $6.037 billion.
The piece next detailed a "what if" scenerio for DME if it got the $2.5 billion loan, what it would take to service the $2.7 billion each year. It started witht he assumption that DME could get 20 mills per mile for every ton of coal. The scenerio used a 1,000 mile haul as a basis for the formula: 1,000 miles X 20 mills or $20 to deliver one ton of coal. Then you have to take that $20 X 15,000 tons per train to come up with the $300,000 from one train for the 1000 miles. The number of trains needed to generate $2.7 billion in revenue you divide the $2.7 billion by $300,000 per train which gives you 9,000 trains a year. Then divide those 9,000 trains by 365 to get the number of trains per day, which would be 25 loaded trainsbut a total of 50 on the track because 25 would supposedly be returning on the same tracks which might cause some logistical problems. Run the numbers again, 9,000 trains a year X 15,000 tons each, and you come up with 135 million tons per year which would generate $2.7 billion in annual revenue. Of course, as you noticed early on the big railroads revenue is 1 to 2 times their long term debt figure. The optimistic DME scenerio outlined above only equals their long term debt. So, bilboba is probably right in saying DME is most likely looking for a quick sale.
You musts be overlooking operating costs�for example how many locomotives does 50 trains require, rolling stock, maintenance equipment, fuel costs, employees, executive salaries, insurance�all those heavy operating costs. As the piece said, the 20 mills figure is probably way to generous and that is why the competition(UP and BN) will squeeze the revenue flow. Haven't seen the 30 year amortization in any of the news releases. Where did you come up with that? Only 20 years has been mentioned.
For example, BNSF runs about 45 trains per day from the PRB. BNSF had about $2.448 billion in coal revenue for all of 2005. Maybe 20 mills per ton mile is too high a figure. If BNSF is generating $2.448 billion on 16,500 loaded trains per year, that averages out to $148,000 per train. Most of this information can be found on the Net at the various railroads sites. I believe you have to look at the previously posted BNSF, UP, NS, CSX revenue to long term debt ratio. Those companies have annual revenue of 1 to 2 times their long term debt. It looks like their annual debt service of interest expense and principal retirement is around 10% of their outstanding debt. Their total revenue is anywhere from 12 to 20 times their debt service, which means they have plenty of cash coming in to pay their bills, maintain infrastructure and handle the debt service.