HIGHLIGHTS FROM THE MAY 2008 ISSUE
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International registry could roil U.S. rail industry
Which is why we decided to interview Bob Alvord. Alvord is the senior partner in the Washington, D.C., law firm of Alvord and Alvord. Like his partner, Charlie Kappler, before him, he is a Rosetta Stone in the process of translating the sometimes arcane lien recordation processes in Washington that assure that the ownerships and interests of various parties in the nation’s railcar and locomotive fleet are properly recorded.
Kruglinski: Let’s start with a little primer on Alvord and Alvord, the markets it serves, and the Surface Transportation Board’s recordation system. Alvord: We serve any sector of the railroad industry that needs to perfect a security interest in railroad rolling stock. That includes the obvious: railroads, banks and other financial institutions, car fleet owners, etc. But it also includes “John Q. Car Owner” who wants to borrow funds using his one flatcar as collateral. We have handled transactions as small as one locomotive and as large as 40,000 railcars.
Each document filed with the STB is given a recordation number and a specific recordation time. Priority of security interests is simply first filed, first perfected. The STB system is not a title registry. Its sole purpose is to give public notice of any lien or encumbrance on rolling stock.
Kruglinski: Here’s an important question for people contemplating the acquisition of railcars or locomotives or the financing of either or both: How much time does this typically take and what does it cost? Alvord: If we are given accurate data about the equipment and about the parties who have been associated with that equipment, the average assignment can be completed within a day or two—although, obviously, not all assignments can be completed within the same day. We do everything possible to make our schedule coincide with the client’s schedule. The STB currently charges a filing fee of $34 per document. Our fees are based solely on time. We search the STB records, give a search opinion as to our findings, record releases and terminations, if necessary, to clear the record of past encumbrances, file the documents required by the current transaction, and then provide a filing/perfection opinion. Our fees for a typical transaction run between $1,500 and $2,500.
Kruglinski: I saw a news release recently about an International Protocol. Alvord: I suspect most of your readers may be unaware of the fact that, on Feb. 23, 2007, the U.S., along with 28 other nations, signed the Luxembourg Protocol to the Cape Town Convention. Under the Protocol, an international registry will be established in Luxembourg for the recognition and registration of security rights of lenders and lessors in railroad rolling stock.
Kruglinski: Isn’t that what’s already done through the STB? Alvord: True. Therein lies the problem.
Kruglinski: Is the Luxembourg Protocol already in force in the U.S.? Alvord: No. As part of the 2001 Cape Town Convention, it will have to be presented to the U.S. Senate for ratification. The Aircraft Protocol, for example, was ratified by the Senate on July 22, 2004, and became law on March 1, 2006. The Rail [Luxembourg] Protocol may, however, be submitted as early as this year.
Kruglinski: If this Protocol becomes law, how will it affect the U.S. rail industry? Alvord: As you know, each unit of railroad rolling stock is identified through the UMLER system with a registered reporting mark and road number. Under this system, changes in those marks and numbers are routinely made. If the Protocol requires a new system under which identification marks and numbers are to be permanent, the expense to remark every single locomotive, boxcar, gondola, etc. in this country may be enormous, and with no value added in exchange for the expense. There may be other changes (such as creditor’s rights) to which the rail industry must pay attention. The net result will be increased complexity in consummating transactions, additional fees and expenses—and little or no benefit. I should add that the AAR has consistently voiced its opposition to having an international system imposed upon the U.S., Canada, or Mexico. There is simply no reason to do in Luxembourg what we already do here. After all, in spite of our technological advances, we still don’t make locomotives that fly across the ocean.
Kruglinski: If people want to voice a concern, objection, or simply an opinion on this Protocol, how do they do it? Alvord: A direct contact with the appropriate U.S. Senator would be best, and then the State Department.
Copyright © 2007. Simmons-Boardman Publishing Corp.