Iowa Pacific lands more capital to bolster more track in the Permian Basin

Iowa Pacific Holdings L.L.C. today announced it reached a preliminary understanding with two institutional investors to provide up to $35 million in capital to expand working capital availability, retire a Federal Railroad Administration (FRA) loan and fund track improvements. The company expects to close on the financing in the second quarter.

The financing will improve liquidity and enable the firm to continue improving track for its Texas-New Mexico and the West Texas & Lubbock railroads, which are "experiencing a tsunami of new traffic" because of burgeoning crude oil production in the Permian Basin, said Iowa Pacific President Ed Ellis in a press release.

"We intend to invest about $20 million in those railroads over the next couple of years," he said.

The company's carloads grew from 2,500 in December to 4,950 in April primarily due to increased Permian Basin oilfield activity. Iowa Pacific also is seeking to hire additional train, track and mechanical employees to keep pace with demand.

"With the rapid expansion of freight traffic in the Permian Basin, and the need for additional capacity and track improvements there, we have stretched our currents lines of credit to the limit," said Iowa Pacific Chief Financial Officer Howard Clark.

Iowa Pacific obtained a $64.4 million Railroad Rehabilitation and Improvement Financing program loan from the FRA in late 2009 to help fund upgrades to 200 miles of track operated by the Texas-New Mexico and the West Texas & Lubbock railroads.

"While we appreciate the role the FRA loan program has played, it became evident that FRA was not able to assist us in this growth," said Clark.