Norfolk Southern Bondholders Sue over Safety Disclosures
NEW YORK – Norfolk Southern Corp. was sued on Tuesday by bondholders who said they lost hundreds of millions of dollars because the railroad concealed safety risks prior to the February derailment in Ohio of a train carrying hazardous chemicals.
Bondholders said Norfolk Southern is strictly liable for having in offering prospectuses touted its focus on safety and downplayed the risks of “Precision Scheduled Railroading,” which employs longer and heavier trains that require fewer workers.
The disclosure shortfalls made buying the bonds “speculative or risky,” which was borne out as prices fell, the complaint said.
One offering, a 2.9% bond maturing in Aug. 2051, fell to below 63 cents on the dollar from about 70 cents within one month of the Feb. 3 derailment, Refinitiv data show.
A Norfolk Southern spokesman declined to comment, saying the Atlanta-based company does not discuss pending litigation.
Most large U.S. freight railroads use Precision Scheduled Railroading.
Norfolk Southern faced many lawsuits over the derailment in East Palestine, Ohio, including cases brought by Ohio’s attorney general, local residents and shareholders.
Bondholder lawsuits over disclosure failures are less common than shareholder lawsuits, but can be brought if estimated losses are high.
The derailment released more than 1 million gallons of hazardous materials and pollutants into the environment, and the U.S. 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 people’s long-term health.
Tuesday’s lawsuit was filed by pension funds in Ohio and Michigan. There are nearly 30 defendants, including Norfolk Southern executives and directors and 12 financial services companies that underwrote the bonds.
The case is Ohio Carpenters Pension Fund et al v Norfolk Southern Corp et al, U.S. District Court, Southern District of New York, No. 23-04068.
Top photo: A view of the scene Feb. 24, 2023, as the cleanup continues at the site of of a Norfolk Southern freight train derailment that happened on Feb. 3 in East Palestine, Ohio. Pennsylvania Gov. Josh Shapiro said Monday, March 6, 2023 that Norfolk Southern has pledged several million dollars to cover the cost of the response and recovery in Pennsylvania after last month’s derailment of a train carrying toxic chemicals just across the border in Ohio. (AP Photo/Matt Freed, file)