© Reuters. FILE PHOTO: A Norfolk Southern train rests near the University of North Carolina power plant, after delivering coal to the facility, in Chapel Hill, North Carolina, U.S., August 11, 2022. REUTERS/Jonathan Drake
By Jonathan Stempel
NEW YORK (Reuters) – South Norfolk Corp (NYSE:) was sued on Tuesday by bondholders who said they lost hundreds of millions of dollars because the railroad was covering up safety risks before the February derailment in Ohio of a train carrying dangerous chemicals.
The proposed class action lawsuit filed in Manhattan federal court covers investors who hold $4.75 billion of Norfolk Southern senior notes and bonds from eight offerings between August 2020 and January 2023.
Bondholders said Norfolk Southern is strictly responsible for having, in its offer prospectuses, touted its emphasis on safety and downplayed the risks of “Precision Scheduled Railroading”, which employs longer and heavier trains which require fewer workers.
The disclosure gaps made buying the bonds “speculative or risky,” which was confirmed when prices fell, according to the complaint.
One offer, a 2.9% bond maturing in August 2051, fell to less than 63 cents on the dollar from around 70 cents in the month after the Feb. 3 derailment, according to Refinitiv data.
A spokesperson for Norfolk Southern declined to comment, saying the Atlanta-based company was not discussing ongoing litigation.
Most major US freight railroads use Precision Scheduled Railroading.
Norfolk Southern faced numerous lawsuits related to the derailment in East Palestine, Ohio, including cases brought by the Ohio Attorney General, local residents and shareholders.
Lawsuits by bondholders for failure to disclose are less common than lawsuits by shareholders, but may be brought if the estimated losses are high.
The derailment released more than 1 million gallons of hazardous materials and pollutants into the environment, and the United States Environmental Protection Agency ordered Norfolk Southern to clean up the contamination.
Last month, Norfolk Southern took a $387 million charge for the derailment, excluding expected costs for damage to property values, water and long-term human health.
Tuesday’s lawsuit was filed by pension funds in Ohio and Michigan. There are nearly 30 defendants, including officers and directors of Norfolk Southern and 12 financial services companies who underwrote the bonds.
The case is Ohio Carpenters Pension Fund et al v Norfolk Southern Corp et al, US District Court, Southern District of New York, No. 23-04068.