The record-union., 1896-12-25

of the bonds ISSUED ITO the Union Pacific
was $60, ,552, ,S55, and on account Of the
Central Pacific SAT, 100, $40, making a
total of $1O7, ,743 615.
Under the Thurman funding bill,
! sinking funds are available for the dis
charge of the original amount repre-
scented by the bonds, and have been so
applied: but of the $121 ,497.S3I now
due the Government of the United
States by the Pacific railroads, S1o1,
| 7430 900, is on account of the interest
which has been paid on the bonds
| loaned This portion of the indebted
ness of the Pacific railroads to the Gov
errment was actually accumulated at
! the rate of 10 per cent upon the
amount realized for the sale OF the
bonds loaned.
EXTENSION OR FORECLOSURE.
The facts being presented, questions
of policy naturally succeed. The Gov
ernment of the United States has a
claim against the railroads for over
S121 900. 600. The issue is, shall the
Government attempt to collect this
claim. or shall it forego its collection?
On the very face of things lit is appar-
ent that the Union and Central Pacific
railroads are not worth over 100000
rer mile that sum being the average
indebtedness of all railroads in the
| United States Applying this average
of the bonded Indebtedness of all rail-
roads in the United States to 2,3Sb
miles, and the result is Slo,44O, and
this may be accepted is an approx
mate actual valuation of the proper
ties The aggregate Indebtedness of the
roads is therefore Sis, 4O1 900 in ex-
cess of a fair and reasonable valuation
of the properties.
The first mortgage, which must be
discharged before the Government can
have recourse against the property, be-
ing sos. 600, 900 and the reasonable val
uation of the property being Sil,ooo, :
600, the equity of redemption is by fair
deduction valued at S13,OOO,OU, and 1t
is this equity of redemption which the
Government may dispose of by fore
closure 1t is this margin of Valua-
ton between the actual value of the
roads and the actual first mortgage in
cum brance upon which the Govern
ment must rely for the collection of the
$121 100000 now due.
Senator Thurston Of Nebraska pro
posed that the Government sell its
claim at auction, fixing the auction
limit at SAC. .OOO, 600 AS the Senator was
for many years the chief counsel of the
Union Pacific Railroad, his estimate Of
what the Government claim might be
worth may be accepted as intelligent
1t does not, however, tally with the
we'll ascertained facts of the valuation
of the railroads in the United States,
nor the deduction of value from the
authentic statement Of facts herein
above presented. But even accepting
Senator Thurston's doubtful estimate
of the value of the entire properties
at S4O,0OO,000, and their sale at that
figure, Will entail upon the Government
a loss of SS1 ,OO0. 900.
The question arises, who is to be the
beneficiary of this abatement of SS1,-
100000? Necessarily the stockholders
of the Union and Central Pacific Rail-
roads The Pacific Railroads would Ger
tainly be able to consolidate their first
mortgage obligation with the amount
they would pay for the Government S
claim, and issue a new first mortgage in
the amount of ascertained indebted
ness. Thus if they are not at present
able to pay their debt they could have
recourse to a new consolidated first
mortgage and become successful bid
ders at the Government sale. They alone
own the branch lines which make these
main lines profitable, and competitive
bidders would be deferred by that fact
from entering into competition with
them at the sale.
1t is, therefore, not only probable, but
actually conclusive, that the proposition
to foreclose the Governments claim
and sell it at auction means to discharge
the debt of &121 100000 by the payment
of whatever the Government claim
would bring at auction. The actual
value of the equity of redemption can
not exceed S13 100000. although the
constructive value, as estimated by Sen
ator Thurston, is placed at S40,0OO000.
But in either event, the proposition of
foreclosure is practically to sell to the
stockholders of the Union and Central
Pacific Railroads a claim for S121 ,0oo,-
900 for whatever 1t will bring at auc-
ton, thereby conferring an additional
subsidy of $50 000, 900 or 500, 600 900.
The net result of proceedings in fore
closure would be to discharge the Gov
ernment's claim at a discount of from
$50, 900 900 to 500, 600. 900, and this vast
sum by every reasonable probability
attending the situation would inure to
the benefit Of the present owners and
operators of the Union and Central Pa
cific Railroads.
But assuming, for the sake of argu-
ment. that some outside party pur-
chased the Government claim at $40
900. 900. The effect on the commerce of
the Pacific Coast would not be changed.