Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1892-03-21
A LESSON TO LEARN
In the Reorganization of the Rich
mond Terminal.
A TINE FOR INVESTORS TO THINK.
The Three Things Very apparent in the
Scheme of the Committee.
MATTHEW MARSHALES TOPICAL TEXT

NEW YORK, March 2O-"A Lesson for In
vestors, is the title of Matthew MARSHALL,
article for to-morrow's San, which is as fol
lows:
Lying before me is the printed plan OF re
organization of the Richmond and West
Point Terminal Railway and Warehouse
Company, more commonly called, for breyi.
tvs sake, Richmond Terminal 1t is a
handsome pamphlet nearly a foot square,
and containing 2S pages of reading matter
and figures. Fortunately for myself, have
no personal interest in its contents, and If
had i do not know that / should compre-
hend them. Considering that the plan deals
with three enormous networks of railroads,
that the total Of the stocks and bonds in
volved is nearly $500 100000. and that they
comprise over 100 different issues, with
values depending upon elements Of which,
like most of my readers, probably, have
no precise information, l could only iali
back upon my respect for the committee
who have framed it, and from their estab-
nshed reputation for ability and integrity,
conclude that what they propose is not only
fair and just, but most advantageous for all
concerned.
1 am told that the terms offered for the e1-
change into new securities for the underly-
ing sectional mortgage bonds are In SOME
cases inadequate, and therefore, not likely
to be accepted; but on the other hand, 1
have seen figures prepared by Messrs. Ham
bleton Co., the Baltimore bankers, which
demonstrate that, putting the proposed new
per cent bonds at so and the new preferred
stock at 40 the best underlying securities,
with few exceptions, will come out at
nearly their present market values, and
some of them will do better. This. however,
is matter for the security holders them
selves to consider.
Worth an Inspection, at Least.
But difficult as it may be. and to some. per
haps impossible, to master the details of
the proposed scheme, / commend to in
vestors an inspection of it, in a general way,
as exceedingly instructive. 1t brings be-
fore the mind, in distinct and sharply
defined form, the risk taken by purchasers
of securities like those of the Richmond
Terminal system, their helplessness in the
face of financial disaster This particular
concern is but one among several Others of
the same characteristic Atchison, Topeka
and Santa Fe, the louisville and Nash
vile, the Missouri Pacific, and Union Pa
cIf1c, for example, being co Qually composed
Of multitude of integral parts, which in
connected would be comparatively worth
less.
1t is only little more than two years
since the Atchison, Topeka and Santa Fe
Company underwent a process of readjust-
ment similar to that now proposed for the
Richmond Terminal, and less than a year
since the Union Pacific was saved from a
receivership only by an arrangement with
its creditors closely resem bling an fnsolvent
assignment. In both these cases investors
holding small amounts of stocks and bonds
accepted the new securities offered them,
not cheerfully, indeed, but with resignation
as to the inevitable. Indeed, the most sensi-
Bile among them congratulated themselves
that they Jared no worse than they did. In
oividual opposition was so clearly futile that
it was not attempted, and combination was
impracticable. Some large holders resisted, |
but they were speedily placated and gave
no further trouble. |
Excellent Summing Up of the Doctors.
Dfah
summed up the past career and the present |
condition of their patient very neatly on /
page of their pamphlet They say: "The |
companies controlling the respective sys-
TENS have, in declaring dividends. treated /
the Indebtedness to them of their subor- /
dinate companies as assets, although such
Indebtedness could be collected only out of 1
the net earnings of the subordinate CON-
panies. The committee finds that the vari-
Gus systems have not been operated through
out for the common benefit of the control |
ling interest, but that they have competed
among themselves for business, each sys-
tenn maintaining a separate organization |
for obtaining business This has necessarily /
resulted in large dimunition of net earn
ings of the property as whole, and in an
increase of expenses. Receiverships, bank
ruinous sacrifice of securities are inevita-
bic, unless a remedy be applied without de-
Law"
That is to say, the show of net earnings
heretofore made has been delusive, the bus
1ness of the company has been increased in
amount by a cutting OF rates entirely unnec- |
essary. and the concern has now got into
situa ton where it must either compromise
with its creditors or go to pieces. presume
that the committee are entirely right in
their charge that the nominal book indebt-
ednesS of the subordinate sections of the |
Terminal system has been called |
a Applicable to dividends. In this respect
it is sinner among railroad companies
against the rules of sound finance. 1t has |
plenty of precedents and plenty of compan-
ionship.
"Reminiscences of Years Ago.
/ remember years ago, having a rather
acrimonious dispute with the late David |
Dows over this very point. The Chicago and
Rock Island Bailroad Company, in which he
held the controlling interest, had issued an
annual report in which the advances it had
made during the year on account OF the Chi
cago and Southwestern Railroad were reck-
oned as a debt, although they were made to
cover deficiency in the earnings of the
road to meet its fixed charges. / contended 1
that the Southwestern road, being owned by |
the Rock Island Company, was really part
Of its system, and that the loss incurred in
of the road to meet its fixed
charges. Icontended that the Southwestern
road, being owned by the Rock Island Com
nany, was really part of its system, and
that the loss incurred in running it should
be deducted from the earnings of the entire
property in computing profits
|
the opposite view, and, as things turned out,
the Southwestern division subsequently be- |
came sufficiently profitable to wipe out the
debit charges against it on the Rock Islands |
bookkeeping. But suppose that the con-
trary result had happened? The Rock |
Island would have had eventually to |
shoulder the loss, and to acknowledge that
It had made dividends which it had not |
really earned. This actually occurred not |
ong ago in the case of the st. Louis and
san Francisco Railroad since absorbed by
5he Atchison, Topeka and Santa Fe Com
Company had made large advances to the
Atlantic and Pacific Railroad Company,
which it was unable to collect.
Money Borrowed to Pay Dividend.
1t, therefore. took for its debt bonds of the |
Atlantic and Pacific, put its guarantee on |
hem, sold them in the market, and treated |
he proceeds as payment of the debt due to |
c. The operation-which was neither more |
lor less than borrowing money on its own
,redit-enabied the company for that wear |
q make its full dividend OF per cent on its |
irst preferred stock, but it could not be re- |
,eated, and the next year the dividend had |
o be reduced to per cent and finally to |
lothing.
Mucn more conservative institutions have |
ollowed the same vicious course, the justi-
ication being that the losses sustained in de-
-eloping new road for property are charge
is cost. The retiring Richmond Terminal |
directors seem to have assumed on this
principle that the deficiencies of the subor-
Innate companies would eventually be made
ID and, therefore, diu not reckon them as
osses. The Reorganization Committee
ook different view, and, consequently |
"a de lower estimate of the earning power
f the entire system than its former mana
ers did.
Whatever may be the soundness of the
ommittee's position on this point they