B. Allen Brown, CEO and president of Railmark Holdings, Inc. says the city of Sault Ste. Marie overstepped its authority by requiring the Wixom, Michigan company to provide proof of financing, which he said was not required by CN or Transport Canada.
In a letter to Tom Dodds, CEO of Sault Ste. Marie Economic Development Corporation (EDC), Brown laid out a timeline which he said shows his willingness to run the passenger service and how the city, through the EDC, is unwilling to allow him to run interim service.
In the letter, Brown said, “the city wanted extra funds on hand - funds which were not required in the original RFP (request for proposal) nor by CN nor by Transport Canada - and would not accept a willing Canadian financial institution contract to provide funds based on guaranteed reimbursement ultimately by Transport Canada.”
Brown said he is shaking his head as to why the city will not allow Railmark to provide interim service until a new third-party operator can be found.
“I am aghast. I am offering a month-to-month agreement. They can find someone else. If they have the funding in place it’ll be easier for them to find someone and people won’t be suffering," said Brown by phone today.
He said his concern is the business owners who are missing out on the summer tourist season due to loss of the train.
“The blood is going to be on their hands (the city), not mine. I’m trying to get it resolved,” said Brown by phone.
He said media reports led to financial institutions getting cold feet and not providing funding for the company.
“Over the last two and a half or three months Tom (Dodds) specifically asked me not to talk to the press and let him talk to them. That didn’t really get me fair and unbalanced reporting, did it?” asked Brown, rhetorically.
A copy of the letter sent today from B. Allen Brown to Tom Dodds can be seen below:
RE: RAILMARK CANADA LIMITED
It is difficult for me to believe you, personally, as chairman and leader of the stakeholder’s committee, would make any decision to allow possibly crippling economic harm to come to the rail line’s businesses over Railmark’s offer to run the Sault Ste. Marie-Hearst train on an interim basis.
As I have done throughout the process, including fronting the costs for train operations over the last two and a half months without a written agreement for reimbursement, I have been acting in good faith with the complete understanding of what is at stake for businesses in the remote areas and smaller towns.
Railmark has demonstrated its commitment to the project.
Let’s review a timeline and chain of events:
• September 30, 2014 – Sault Ste Marie Economic Development Corporation issues a 23-page “Terms of Reference and Request for Proposal for the former Algoma Central Railway Passenger Train Operation. In this official government document there is no requirement for a Line of Credit, much less a line of credit in the amount of $550,000. Railmark submitted its proposal on October 31, 2014.
• On City of Sault Ste Marie letterhead issued by Mr. Joe Fratesi, Chair, ACR Passenger Service Stakeholder Working Group and Chief Administrative Officer for the City of Sault Ste Marie, Railmark is asked to provide additional information by December 2, 2014. This additional information requested details of Railmark’s economic turnaround plan for the train. Railmark submitted the additional information by the requested deadline.
• On January 8, 2015, the City of Sault Ste Marie and the EDC (issued by Joe Fratesi and Tom Dodds), issues a news release indicating an unnamed company (Railmark) had been selected and negotiations had begun.
• In January 2015 and the first part of February, Railmark prepares economic justification for its plan to reduce the Canadian taxpayers subsidy of the train by the end of the 5th year. Railmark issues a February 2, 2015 ACR Business Plan used in the City and EDC’s request for $7M in subsidy funding over a five year period – the amount derived from Railmark’s Plan. Railmark would later participate on conference calls with Transport Canada to provide economic justification.
• On March 31, 2015, late in the day, Railmark was notified by Transport Canada it had been issued the first Railway Operating Certificate under the new railway laws. Also on that same day it was announced Transport Canada approved the first three years of the subsidy, or $5.3M, the maximum time allowed by the legislation, although the final two years were recognized. A news release was issued b the ACR Working Group.
• On or around April 10th the EDC received a draft contract from Transport Canada. This would be a “Recipient Agreement” for the City of Sault Ste Marie and a mirrored “Ultimate Recipient Agreement” for Railmark Canada Limited. On April 28th Railmark receives its first copy of this agreement, which it is dated April 22nd. On the morning of the 29th Railmark receives an expanded version of the agreement with changes made internally between the EDC and the EDC’s attorney. Railmark had its first discussion on the document with the EDC and its attorney on April 30th. Nowhere in the agreement or the discussion is the requirement for a $550,000 line of credit.
• April 13, 2015 – City of Sault Ste Marie passes a resolution to enter into an agreement with Railmark – in principle.
• April 20, 2015 – Railmark’s capital provider, Perla Global Capital Partners, misses funding. Despite coming to Sault Ste Marie in person and with CN on the phone, Perla made the representations it was going to fund the transaction and provide Railmark’s financial support. Representatives from the EDC seemed content with the representations. It would be discovered shortly thereafter, Perla had no ability to fund any transaction. Both the EDC and CN had known of Perla as Railmark’s financial provider and it was assumed due diligence had been performed. Railmark is launching a cause of action against Perla for these mis-representations and the harm it has caused the company.
• Due to regulations and logistics, Railmark and CN executed documents and Railmark assumed operations of the ACR on Wednesday, May 1, 2015. Railmark had the funding and working capital necessary to close the deal and believed execution of the Ultimate Recipient Agreement was only a few days away. The ACR was not scheduled to operate on that date.
• May 1, 2015 – Railmark is asked to be a part of a DRAFT News Release involving the EDC, Working Group and Transport Canada on the operating schedule. Railmark ultimately issued the release itself, although we had relied on media contact information which never materialized. Railmark is hesitant to activate its insurance and initial costs as its Ultimate Recipient Agreement was not signed and a way to be reimbursed was not present.
• May 4, 2015 – Railmark requests from EDC that it be provided with a current version of the Ultimate Recipient Agreement for its line of credit capital providers and an acknowledgement from the EDC that this will be executed by both parties. Railmark told the EDC this was its initial credit line, but the EDC would later reject it stating it was not high enough.
• May 7, 2015 – With pressure from the Stakeholders and the EDC, Railmark commenced operations. In the month of May, CN crews were utilized and the train operated three round trips per week.
• June 2, 2015 – The first major comprehensive correction and update of the Ultimate Recipient Agreement came back from the EDC’s attorney.
• JUNE 2015 – Railmark urged that the agreement be completed, and the signal of its execution subject to a line of credit. Railmark would go to four major Canadian financial institutions during the same time increased negative press came from the City, the EDC and the Stakeholders. Railmark hired a noted Ottawa-based merchant banker to assist with the problem who also contacted other sources. Options still exist today, but are harder to advance due to all of the negative publicity of Railmark generated by the City, EDC and the Stakeholders.
• JUNE 2015 – In the final preparations for the takeover, certain CN represented crews and employees intentionally made it difficult for Railmark to launch service in a variety of ways. Railmark uses non-represented crews. Railmark’s crews begin operating the trains on June 18, where it was alleged the Railmark crew had a federal rule violation, causing its crews to be pulled out of service pending an investigation by CN, Transport Canada and Railmark. Railmark was cleared, and its employees returned to duty June 25, 2015.
• From June 25th thru July 14, Railmark had to operate a schedule under heat issues which were causing slow orders, forcing the train to operate at 10 mph as opposed to 30 mph. Due to this and the fact its reimbursement agreement had not been signed, Railmark did not implement its second crew. Instead, Railmark relied on confirmed passenger reservations and provided service on the line focused on the north-end schedule, while shuttling any passengers to and from Sault Ste. Marie and Hawk Junction. Railmark feels it provided service commensurate with those passengers’ needs that had made a reservation.
• With no reimbursement mechanism in place with the EDC and under its agreement with CN, Railmark was not allowed back onto the CN tracks after July 15th – for financial reasons, its inability to pay CN access fees, which is a reimbursed expense under the federal subsidy. Railmark still maintains all of its operating certifications. During the past few weeks Railmark’s crews had been observed by both CN management and Transport Canada for “efficiency testing” and crews received good reports.
• Railmark presented a short term proposal to the EDC and Stakeholders on Wednesday, July 15, 2015 which was rejected, without logical explanation or counter proposal. The proposal would have resumed scheduled train operations on both ends of the railroad beginning Saturday, July 18, 2015. The proposal provides for Railmark to step back should and when the Stakeholders locate a more favored operator.
• Monday, July 20, 2015 – Railmark refines is recent proposal to basically provide for a month-to-month agreement with the City and EDC to provide rail service while a search for another operator is in progress. This proposal would see train service start Thursday, July 23, 2015, providing service to both ends of the railroad while moving to place a second crew in service towards the end of August. Railmark has received calls from the customers on the line who want and need rail service now.
This timeline demonstrates an unflinching willingness on the part of Railmark to provide passenger train service on the former ACR Passenger Train operating on the Algoma Central Railway line, even to the point of providing the service in good faith without a written contract.
More than one recent newspaper account has reported your group does not intend to reimburse Railmark for services provided because the agreement – which Railmark was constantly provided on a late basis – was never signed.
The reason for not signing?
The City wanted extra funds on hand – funds which were not required in the original RFP nor by CN nor by Transport Canada – and would not accept a willing Canadian financial institution contract to provide funds based on guaranteed reimbursement ultimately by Transport Canada.
While you have constantly and publicly portrayed Railmark as the villain in this scenario, it is, in fact your group and the City of Sault Ste. Marie which have been intransigent in bringing the contract to a satisfactory conclusion by all parties.
Railmark fulfilled ALL requirements set forth by CN and Transport Canada and maintains it is a local failure to understand the contract which has brought us to our present situation.
Factors beyond everyone’s control emerged and while Railmark and CN made accommodations, the EDC remained unwilling.
A plan was offered to you Wednesday, July 15, 2015, that provided service in the short term and allowed the EDC ample time to both locate a permanent operator and to get the new operator qualified.
As indicated, while not speaking for CN, a final solution will no doubt have them looking to get their track access fees paid from May-mid July.
Although there are carryover expenses that are one-time from those periods – some of which a new operator will not have to pay – the portion owed to Railmark during those times is relatively small.
For the benefit of those small businesses dependent on the warm weather tourism trade along the Algoma Central route, rather than mark up the agreement as you suggested, I proposed entering into an essentially a month-to-month agreement which keeps the train running, the tourists coming, and business flowing into the remote areas and the small towns who rely on these tourists for their livelihood.
The North American professional railroad community is a small community, and the ups and downs of Railmark’s saga with local officials in Sault Ste. Marie is being watched closely.
As other operators witness in real time how difficult it is to get an agreement in place after all original conditions of the RFP have been met, and the City adding new, unexpected conditions post-selection of an operator, and seemingly has little regard for the uninterrupted continuation of the train service, other qualified operators are likely to think twice about doing something quickly to help the patrons of the line.
This is why the Railmark month to month agreement would also be beneficial because it would establish the funding mechanism.
It will be much easier to attract another operator if a funding mechanism is already in place.
I had proposed entering into a term of May 1 until November 30, or at such time as another operator is in place.
All that Railmark requires is the reimbursable expenses be made.
Technically, this proposal is a losing proposition for Railmark, in that we would have at least six months of expensive liability insurance we could not bill if we stopped as the operator at the end of November.
So do you really want to hurt those businesses and patrons of the line that would like to see the service restored (as early as Thursday) and allow Railmark the three weeks or so to get the second crew onboard?
What is proposed is a month-to-month agreement, cancellable by the EDC (with notice).
Last Friday Railmark sent you May and June invoices; each containing a large portion going to the CN.
If the EDC makes the move to get this funding mechanism in place and convince CN they will get their money, all we need to do to get started is the payment of Railmark's portion for May of $18,333.33 OR execute the month to month Ultimate Recipient Agreement with the provisions offered above.
We would expect our June portion of $73,332.33 to be paid by the end of the month or first week in August.
CN has been copied on the invoices provided to you last week.
This process does not have to be difficult, and it is in the BEST interest of all parties to restore train service.
To be clear, no one is currently trying to convince you to go with Railmark on a long term basis until after you have reviewed your other options for operators.
In the meantime, Railmark has made good progress on three different sources of capital and credit lines over the past few days.
Railmark is looking to other projects for funding as well, but continues to place its first priority on this passenger train.
Railmark will not remain in this limbo state for much longer; there will come a point when the necessary insurance will be allowed to lapse and other fees necessary to remain a carrier option for you on the SSM to Hearst Passenger Train will no longer be paid.
At that point you will only have the option of whatever “plan” you are currently pursuing now.
Should that time come, Railmark will no longer publicly protect the Working Group or the City of Sault Ste Marie from adverse publicity over this matter.
Going forward, we will be open and blunt with the news media as to the timetable of events, and which parties have been willing to work for the overall benefit of all, and which parties have acted less responsibly.
I am sincerely asking you to reconsider Railmark’s proposal and what impact these decisions are having on real people, real businesses and real tourists.
Additionally I am encouraging you to reach out to others outside of your committee and ask them their opinions, as I am convinced your “Working Group” is not as in touch with the true stakeholders as much as you think.
Everyone I speak to wants the train to continue to operate while the EDC and Railmark sort things out, whether or not Railmark continues on any more than on an interim basis.
There have been mistakes made with all parties in this process. And while I am not trying to cast all of the blame on Railmark being victim to Perla Global Capital Partners, easy adjustments can be made here using Railmark’s proposal to keep the train running and not move backwards.
Continuing to rally around your original statement of Railmark not meeting the pre-condition of a $550,000 credit line is not leadership. Allowing the train to cease operation, harming thousands of people, also is not leadership.
With the proposed payments being made directly to CN for its portion and Railmark’s residual to Railmark and the fact that Railmark has already incurring $270,000 in reimbursable expenses to date, should combine to more than satisfy this credit line condition on Railmark’s proposed month to month, interim plan.
Both CN and Railmark had to adjust when circumstances dictated and the EDC should too, especially since it is in the best interest of the economy.
Please do not allow this situation to devolve into a personal issue or become something which is likely to involve the courts and ongoing negative publicity for Sault Ste. Marie, the Stakeholder’s Group, and tourism efforts to Ontario – FOR THIS IS NOT MY INTENT.
Please do the right thing and work with Railmark to restore service to the people and businesses who desperately need it the most now.
Lets restore train service this week.
B. Allen Brown
President & CEO
Railmark Canada Limited