Montreal Maine & Atlantic Railway Ltd. has chosen a “stalking-horse bidder” and expects to complete negotiations this week on an opening bid for the bankrupt railroad’s assets, the company’s court-appointed trustee told Bloomberg News.

The trustee, Robert Keach, said that there are a half dozen “really committed parties” doing “heavy due diligence” in preparation for submitting competing bids.

Keach did not return calls Wednesday. His voice-mail greeting indicated he was out of town.

A stalking-horse bid is the initial bid on a bankrupt company’s assets that sets the bar for other bidders. In corporate bankruptcies, the bankrupt company chooses one of the companies interested in purchasing it to set a negotiated opening bid price. Any other companies that are interested in buying the bankrupt company can then submit their own bids but they cannot be lower than the initial bid.

The purpose of a stalking-horse bid is to make sure the company receives an adequate offer for its assets.

The Hermon-based Montreal, Maine & Atlantic and its affiliated company in Canada filed for bankruptcy Aug. 7, a month after one of its trains carrying 72 cars of crude oil rolled downhill into the town of Lac-Mégantic, Quebec, derailed and exploded, killing 47 people and destroying 40 buildings in the heart of town.

According to documents filed in bankruptcy court, the railway company is worth $50 million to $100 million and owes about $37 million to its largest creditors.

Keach told Bloomberg that repairs to the damaged track in Lac-Mégantic are nearing completion, which would allow the railroad to resume carrying cargo between the U.S. and Canada as early as next week.

He said the railroad’s revenue is down significantly as a result of its inability to carry cross-border freight, adding that the company has chosen not to transport any shale oil, the substance it was carrying when the derailment and subsequent explosions occurred.

According to an operating report filed in U.S. Bankruptcy Court for the District of Maine, Montreal, Maine & Atlantic operated at a net loss of $453,000 in October, the most recent month reported.

A hearing is scheduled for Dec. 16 in both U.S. and Canadian bankruptcy courts to set forth the procedures for auctioning off the railroad’s assets.

Keach would not disclose the initial bid price or identities of the potential buyers.

The Federal Railroad Administration is the bankrupt railroad’s largest secured creditor and is entitled to $28 million worth of the railroad’s real estate assets and all shares of its Canadian company, Montreal, Maine & Atlantic Canada Co. However, the administration has agreed to forgo $5 million of that debt to pay for the bankruptcy case.

The Wheeling & Lake Erie Railway is Montreal, Maine & Atlantic’s second-largest secured creditor. It is owed $6 million for a line of credit it issued to the company in June 2009 and is to be repaid from non-real estate-related assets.

Secured creditors hold priority claims and are paid before unsecured creditors in bankruptcy cases.

The railroad has more than 200 unsecured creditors, which are businesses or individuals who are owed money but do not have collateral or legal means to force repayment.

In addition, there are more than 20 pending lawsuits by victims of the derailment, their families, a creditor, an insurance company and others.

Judgments in those cases are expected to total in the hundreds of millions of dollars.

U.S. bankruptcy law dictates that victims and their families who win civil judgments from train-related accidents have higher priority than unsecured creditors in a railroad bankruptcy, but lower priority than secured creditors.

That means only secured creditors can be compensated before those civil claims are settled and paid out to the extent possible.

J. Craig Anderson can be contacted at 207-791-6390 or at:

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Twitter: @jcraiganderson