BY TOM BELL

AND CRAIG ANDERSON

Portland Press Herald

The Montreal, Maine & Atlantic Railway filed for bankruptcy on Wednesday, just 33 days after one of its unattended trains rolled down a hill and derailed, causing explosions that killed 47 people in a town in Quebec.

The filing gives the company “breathing space” as it searches for a buyer or works to restore its affairs so it can continue operating, said the railroad’s attorney, Roger Clement, of Verrill Dana in Portland.

He said Chapter 11 bankruptcy filing also provides a fair process for handling the many claims that have emerged since the accident.

There have been discussions with potential buyers, but nothing has “jelled,” Clement said. A decision about selling the railroad may be made over the next few weeks, he said.

According to documents filed Wednesday in U.S. Bankruptcy Court for the District of Maine, the railway company is worth $50 to $100 million, and it owes about $39 million to its largest creditors. In all, the company estimated that it has between 200 and 999 unsecured creditors, which are businesses or individuals who are owed money but do not have collateral or legal means to force repayment.

Several lawsuits also have been filed since the accident, including a potential class action filed by victims and family members of victims in Lac-Megantic.

The railroad’s chairman, Ed Burkhardt, said in a statement that the company’s obligations now exceed the value of its assets, including its expected insurance payouts as the result of the accident.

The bankruptcy filing, he said, is the “best way to ensure fairness of treatment to all in these tragic circumstances.”

The railroad owns 512 miles of line and has 54 employees in Maine and 34 employees in Canada. Most have its workers have been laid off since the accident disrupted operations. Its headquarters is in Hermon, Maine.

Because it operates in two countries, the railroad consists of two companies, the Montreal, Maine & Atlantic Canada Co. in Canada and the Montreal, Maine & Atlantic Railway, Ltd. in the United States. Each company has its own board of directors, and Burkhardt is the chairman of both boards.

On Wednesday, the Canadian company filed for bankruptcy under Canadian law in Superior Court of Quebec in Montreal, while its sister company in Maine filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

Because railroads are critical for commerce and have monopoly status, U.S. bankruptcy law has special rules to assure that railroads continue to operate and are not liquidated. In fact, railroads are not allowed to file for Chapter 7, which is used when a company closes its business and sells of its assets.

The federal Surface Transportation Board could appoint a trustee to operate the railway.

Burkhardt said essential rail services will continue at all stations in Quebec, Maine and Vermont, with the exception of Lac-Megantic itself because the rail yard is under the control of authorities investigating the accident.

Gov. Paul LePage said in a statement that the Maine Department of Transportation will participate actively in the bankruptcy proceedings, as well as any related regulatory proceedings, to protect the rights of shippers to receive service.

Several manufacturers in Maine depend on the railroad to deliver products to customers around the country.

In a bankruptcy proceeding, secured creditors — those that have collateral for the money they are owed — are at the front of the line to be repaid any debts owed by the company. Unsecured creditors often receive a far smaller portion of what they are owed, if anything.

The railroad’s largest secured creditor is the federal government, according to bankruptcy documents.

The railroad still owes $27.5 million on a $34 million Federal Rail Administration loan issued in March 2005, the documents said.

The Federal Railway Administration would have the legal right to take possession of all real estate owned by the company if it defaulted on its $34 million federal loan, according to motion filed by railroad in court.

The company’s second-largest secured creditor is Wheeling & Lake Erie Railway Co., which is owed $6 million on a maxed-out line of credit,

The railroad’s largest unsecured creditor is New Brunswick Southern Railway Company Ltd., to which it owes an alleged $2 million.

However, Montreal, Maine & Atlantic is disputing that debt, court documents show.

The debt to New Brunswick Southern probably is for its services as a “switching carrier,” which delivers the Montreal, Maine & Atlantic cars to and from the Irving Oil refinery in New Brunswick, said Chalmers “Chop” Hardenbergh of Freeport, who publishes Atlantic Northeast Rails & Ports, a trade publication.

The second-largest unsecured creditor is Ed Burkhardt, who is owed about $786,000 for “indemnification and/or contribution in connection with wrongful death litigation and other claims,” a likely reference to money Burkhardt has paid out of his own pocket in connection with wrongful-death lawsuits filed by the residents of Lac-Megantic.