Connecticut Confession

Stocks not worth the paper they are printed on are sometimes traded on the New York Stock Exchange but they are usually quoted in pennies. Last week a stock selling for $12 per share was stricken from the board on the voluntary confession of the company that its shares were worthless. The company was Connecticut Railway & Lighting, which has 89,772 shares of common outstanding, besides 81,429 of preferred which were not affected by last week's action.

In 1906 Connecticut Railway & Lifting leased its gas, electric and street railway properties for 999 years to Consolidated Railway Co., which was later absorbed by New York, New Haven & Hartford R. R. Co. New Haven sublet the gas and electric properties to Connecticut Light & Power Co. The traction properties were sublet to a New Haven subsidiary called Connecticut Co. Last year all Connecticut Railway & Lighting had to do was collect $1,400,000 per year from its leases, distribute interest and dividends pay taxes. More than $1,000,000 of its income was derived from the traction properties, not because the streetcar system was particularly profitable but because the name of New York, New Haven & Hartford R. R. was on the lease. The railroad had to make good whether the rental was earned or not.

Last autumn New Haven flopped into a reorganization. With court approval the trustees of the road promptly canceled the traction lease made in 1906. The gas and electric leases remained in force. But the most Connecticut Railway & Lighting could expect from its streetcar lines is an annual $118,000, instead of the old figure of more than $1,000,000. That leaves the company $155,000 short of meeting even the annual sinking fund and interest requirements on its $8,989,000 funded debt.

Last week's confession did not bother the majority of the bondholders because interest on their securities is guaranteed by United Gas Improvement Co., which is also stuck with 88% of the company's preferred stock and nearly one-half the common. Presumably UGI knew what was up. But since the first of the year investors have"bought 19.500 shares of Connecticut Railway & Lighting common at the Stock Exchange's ten-share post for as high as $20 per share. Three minutes with an investment manual would have convinced anyone that the stock was a sale, not a buy.

Connecticut Railway & Lighting revealed in a letter to the SEC that if $1,500,000 of new capital could be obtained to convert trolley properties into bus lines, the company might be able to pay the charges on its funded debt. Even then there was no reasonable expectation that anything could be paid on the preferred stock, let alone the common. Wrote President William Warden Bodine:

"In view of this large margin which must be met before any dividends can be paid on the common stock, the company concludes that for all practical purposes the common stock must be considered as of no value and ... is unwilling to countenance the continued trading in the common stock on the New York Stock Exchange."

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