One repercussion from the denial of the DM&E loan was the hit L.B. Foster took. Coupled with the two percent drop in stock prices (followed by the expected recovery), the stock took a major hit that it has yet to recover from. From the Pittsburg Business Times:
The Dow Jones Industrial Average on Tuesday had its worst day since Sept. 17, 2001, dropping 415 points, or 3.3 percent. The L.B. Foster Co. had an even worse day.
L.B. Foster (NASDAQ:FSTR), a Green Tree-based railroad parts manufacturer, saw its stock price plummet 21 percent, or $5.37, to close at $20.20. L.B. Foster's drop followed the Federal Railroad Administration's decision to reject a $2.3 billion expansion loan to Sioux Falls, S.D.-based Dakota, Minnesota & Eastern Railroad, a railroad of which L.B. Foster is a part owner.
L.B. Foster owns 13.4 percent of the railroad's common stock. In addition, as a rail and railroad tie manufacturer, the company was in a good position to pick up tens of millions of dollars in contracts as well as part of any revenue boosts the railroad realized though its expansion.
"Despite the FRA's rejection of the DM&E's loan application, the company believes that the total value of its investment in the DM&E significantly exceeds the sum of these amounts," L.B. Foster officials said in a prepared statement on Tuesday.
For years, the railroad has been angling to expand into the lucrative coal fields of Wyoming's Powder River basin. The company sought to build an additional 280 miles of track and sought to rehabilitate more than 600 miles of track in three states, a $6 billion project.
But to expand, the railroad sought a $2.3 billion loan under the FRA's Railroad Rehabilitation and Improvement Financing Program. In February, the FRA approved the DM&E's environmental study for the project. But on Tuesday, FRA administrator Joseph Boardman shot down the railroad's loan application, saying he was concerned that the railroad company was already highly leveraged. Among other issues, he said he also was concerned that the railroad might not be able to ship enough coal to cover the cost of the loan.
In a prepared statement, DM&E president and CEO Kevin Schieffer said the company will continue to pursue the expansion.
"This project is too important to the future of our company, regional rail transportation and the many supporters in the agricultural and energy sectors, the communities we serve, and beyond who are relying on it," Schieffer said.
Other local companies that saw stock decreases Tuesday in the wake of a selloff in China include Alcoa Inc. (NYSE:AA), which fell 4.44 percent, or $1.57 to $33.79; U.S. Steel (NYSE:X), which was off 7.87 percent, or $7.39, to $86.51.
Now, realize that the media made the stock price decline sound like the end of the world. A two-percent drop is nothing, it's pocket change for investors. Remember that in 1987, the stock market took a hit when, in one day, stock prices dropped a whopping twenty-three percent.
Here is L.B. Foster's Yahoo Finance page.
UPDATE: Maybe I was wrong. The NYSE has initiated trading curbs (a program put together after the stock market slide of 1987), which is a point at which the stock market will cease trading for a period of time in response to substantial drops in value.
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