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The Federal Railroad Administration has told officials of Canadian Pacific Ltd. that it is dissatisfied with the company's $35 million offer to buy the bankrupt Delaware & Hudson Railway Co.

Approval by the FRA is crucial to the success of the sale because the D&H, which services Buffalo, owes the agency about $90 million from loans that were used to rebuild parts of the track system when it was operated by its owner, Guilford Transportation Industries Inc.

The FRA, part of the Department of Transportation, is D&H's largest creditor. The state of New York also is owed almost $70 million for money it invested in the rebuilding of the railroad's plant and equipment.

Officials of Canadian Pacific Ltd.'s CP Rail subsidiary are still in Washington conducting further talks with the FRA in an attempt to strike a compromise.

Mark Lindsey, FRA's chief counsel, Tuesday confirmed the agency's position, saying, "We'd like to see a higher bid." He said the agency hasn't yet rejected the offer: "We haven't taken that position yet. We could, but we haven't."

CP Rail was chosen on Jan. 9 as the tentative purchaser of the D&H by the railroad's bankruptcy trustee, Washington attorney Francis P. DiCello.

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