CP Slashing Stake in Detroit Tunnel

Partly to boost its cash levels, Canadian Pacific Railway said it plans to slash its joint ownership of the Detroit River Tunnel Partnership to just 16.5 percent from 50 percent now, while its pension fund unit partner gains a firm majority of that facility.

CP would retain rights for exclusive rail operations in the tunnel that links Detroit with Windsor, Ont., and is part of a busy intermodal corridor.

If regulators okay the deal, Borealis Infrastructure Management -- part of the OMERS pension fund that is one of Canada’s largest -- would pay CP $110 million in Canadian dollars or about $87 million in current U.S. dollars.

CP said it will also get more than $17 million ($22 million Canadian) later, based on future traffic levels.

"This transaction allows us to realize value for our asset and strengthen our balance sheet while preserving our right to operate the tunnel," said Kathryn McQuade, CP's chief financial officer.

OMERS President and CEO Michael Nobrega said the tunnel “is an investment that fits into our long-term strategy of securing infrastructure assets that can generate stable and sustainable returns.”

The partnership says it runs more than 450,000 railcars a year through the twin-tube tunnel corridor, the equivalent of 25 trains daily between Chicago and Toronto. But the partners have proposed building a new, higher-clearance tunnel next to it.

The Detroit Regional Chamber of Commerce says the existing, century-old structure is also “outdated and unable to accommodate the next-generation rail cars that are taller and wider than the diameter of the existing tunnels.”

Contact John D. Boyd at jboyd@joc.com