The sun. [volume] (New York [N.Y.]) 1833-1916, 1878-02-03
The Ere II ailway and its Troubles.

tllil NO llOt tOulttll Oilt vi OuI CllltS,
the affairs of the Erie company are of i'm
portance. To the twelve thousand men who
are in the employment OF the road, to their
families and dependents, Its concerns are
OF still greater Importance. To other
corporations, and to individuals who have
occasion to make contracts with the Erie,
1t is n matter of great moment to be able to
foresee the time when they can again deal
directly with responsible corporation and
still more important is 1t that this great
trunk line shall be put In such a state OF
practical efficiency as to enable II to com
pete for all legitimate business on an equal
ity with the other trunk lines. The road
is now managed by receiver, who is
simply an officer OF the Court. placed in
possession of this vast property to save it
from wreck, until its real owners, its credit
ors, can, through a judicial sale, undertake
its management on their own account. 1t is
plain that 1t must remain In the hands of
the present receiver or OF some other, for
an indefinite period Of time, unless some
body Of men are permitted to become its
owners, who are able and willing to stand in
that position and to undertake, by further
advances of capital, to rescue it from its en-
barrassments.
Fortunately it happens that the law OF the
land is amply sufficient for the reorgani-
zation OF this great establishment. The Erie
Railway Company is New York cor
poration, although 20 miles of its main
route and branches lie in the State Of New
Jersey. and about 1876 miles in the State
OF Pennsylvania. The public policy Of our
own State in reference to its railroads which
are subject to mortgages has been declared
in a statute passed in 1874, and amended and
perfected in 1876. This law provides for
a Just and careful method. by which, when
railroad is sold under judgment OF foreclos-
ure, an association Of its bondhoders and
stockholders may become the purchasers at
the sale, and may use their securities In
payment Of the amount Of their bid for the
property. II the property. for example. is
mortgaged for $50 900 900, and sl0,0OO,0OO are
bid for the property at the foreclosure sale
by the holders OF the bonds, the associated
bondholders who propose to form the new
corporation surrender their securities for n
dstributable dividend Of fifty per cent. OF
their par value, and Of course they lose fifty
per cent. Of that par value. IL these asso-
ciated creditors happen to be junior mort
affected. and the junior bondholders are the
only ones who lose anything by the opera
ton But even they, in fact. suffer only a
nominal loss, for their securities are not now
worth more than their probable Distribute
bile share OF the proceeds OF sale under the
mortgage which protects them. As COM
pared with what they gave for the bonds.
what they receive may show a real loss;
but as compared with the available value OF
the bonds, what they receive Is ali that the
bonds are worth
When the property has been purchased
by the associates. through their trustees.
the law allows them to organize a new
corporation and to become the successors of
the old company, in respect to the franchises
and property covered by the foreclosure
sale. The public policy Of the State there
fore, favors reconstruction OF a corpora
ton by any Of its creditors who are able and
willing to undertake the management OF the
property on a new basis, when 1t has become
necessary for them to enforce the lien Of
their mortgage by foreclosure sale; and
this policy has, by comfy very proper TO
be observed by adjoining States through
which any Of our roads extend been supple
mcntcd and aided by laws passed by the
States Of New Jersey and Pennsy lvania, ex-
pressly designed to give, in such cases, to
the new corporation good title to the prop
erty lying in those States.
We have taken some pains to inquire into
the facts in regard to the circumstances Of
the proposed sale Of the Erie Railway. The
present company owes what are called its
second consolidated mortgage bonds, ON
which the interest remains unpaid for Il long
time back. The trustee of the mortgage has
commenced a suit for foreclosure and a
Judgment Of foreclosure and sale has been
rendered by the Supreme Court in the county
Of New York. The bonds secured by this
mortgage probably to the extent of ninety
nine per cent, are held IN Europe. The
foreign creditors, acting upon the induce
mcnts held out to them by our legislation,
have formed an association precisely such
as is contemplated by our statute, by which
they propose to become bidders at the sale,
in competition with any other persons who
may intend TO bid for the property. A large
number of the American bond and stock hold
ers have joined this combination. The bonds
held by these associate creditors OF the road.
to the amount of nearly forty millions of
dollars, have already been sent to New York,
The transaction, If ii is consummated, will
be a perfectly fair and just one 1t will give
to every bondholdcr under this particular
mortgage, whether he Is or is not Il sub
scriber to the association the cash value of
his bond, ascertained by a public auction
sale Of the property. More than this he can
not realize by any steps that he can take.
He gets by the process all that the mort
gage can possibly yield to him
But the policy OF the laws of this State in
respect to foreclosure of railway mortgages
embodies another and unusual feature. of
vast consequence to the present owners of
this property, the stockholders, common
and preferred, of the existing company.
We see every day through the foreclosure