Financial Housecleanings

Immediate reason why one-third (by mileage) of all U. S. railroads are in receivership or reorganization is their mountain of fixed charges (annual bill: $600,000,000), their recurrent burden of maturities. ICC, which must approve all reorganization plans, has lately shown determination to slash bonded debt before letting railroads out of courts, has insisted that stockholders must have real equities or be wiped out in reorganization. Last week two old offenders against the rules of sound financing got typically drastic sentences when ICC proposed its own plans for their recapitalization.

New York, New Haven & Hartford (in the courts since 1935) will see its common and preferred stockholders wiped out entirely if ICC's plan goes through. Biggest common stockholders: Pennsylvania Railroad and its godchild Pennroad Corp. Curtailed by lCC's plan was P.R.R.'s long-mooted influence over New England traffic. Cut to $365,000,000 was New Haven's $464,833,806 capital structure, its fixed charges from $19,531,323 to $6,232,331.

Erie (in court since early 1938) was told to reduce its capital from $490,953,630 to $332,692,250, its fixed charges from $14,368,842 to $5,628,245. Not quite wiped out were its stockholders. Biggest stockholder, the rich Chesapeake & Ohio, would have to put up $40,000,000 in order to retain its 55% control.

Meanwhile, a few solvent roads, spurred by examples like Erie and New Haven, made progress in voluntary debt-reduction programs of their own. Great Northern, which has cut its fixed charges by $5,200,000 since 1934, dickered last week for a $20,000,000 RFC loan to help it meet a $28,132,000 July i maturity, planned to retire the other $8,132,000 itself. New York Central, which had a narrow squeeze in Depression I, still barely covers fixed charges, has hacked manfully at them since 1932. Fortnight ago, facing $20,000,000 in bank loans due April 30, it announced a plan to pay off $4,000,000, refund the rest at lower interest rates.

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