BNSF chief: no role for private equity in US rail

Matthew Rose, head of the second largest freight railroad in the US, also believes that private equity firms cannot provide a more attractive cost of capital to railroad assets once they buy them.

Private equity firms have little financial value to add to railroads and can't play a big role investing in the rail sector, Matthew Rose, chairman, president and chief executive of Burlington Northern Santa Fe Corporation (BNSF), told InfrastructureInvestor.

“We don't have a problem with access to capital,” Rose said. He pointed out that BNSF, the US' second largest freight railroad, still has ready access to credit markets and has a cost of capital that matches any financing a private equity firm might be able to provide.

“I don't think they [private equity firms] have a lower cost of capital once they buy a railroad,” Rose added.

Asked whether infrastructure funds and can play a role investing in the US rail sector, Rose responded: “I don't.”

Though the United States has in excess of 500 railroad companies, private equity investment in the sector has been slow. In June 2007, New York-based Fortress Investment Group bought Florida East Coast Industries, owner of the Florida East Coast Railway, in an all-cash transaction valued at $3.5 billion. In November 2006, Fortress also bought shortline railroad holding company RailAmerica for $1 billion. To date, those two deals stand out as the most prominent private equity transactions in the space.  

Fortress' purchases represented multiples of 26 and 11.7 times enterprise value to EBITDA, respectively, according to a Bear Stearns railroad sector research report published earlier this year.

Rose made the statements while speaking to a group of reporters gathered at the CG/LA Global Infrastructure Leadership Forum in Washington DC.