The Wichita daily eagle. [volume] (Wichita, Kan.) 1890-1906, 1902-07-27


estopped from following the same plan in
its simpler forms. In their own case they
had a special difficulty in that the securi-
y which they had 10 offer as collateral
for their proposed issue OF bonds, the
stock OF the Northern Securities COM
pany, was only small minority. approx
imately So. zoo, 900 out of a total of s4o0-
e00000 stock outstanding. 4 collateral
bond secured by a majority. or even al
/ Of The outstanding stock of a railway is.
at best, not particularly favored among
conservative investors, even when issued
by a company OF very high standing. A
proposition to fund into bonds a minority
+ holding in the stock of company which
! has outstanding. IN the hands OF the pub
/ lie. four times as much stock as is rep
/ resented by the pending bond issue, IS
( obviously particularly difficult Moreover.
I the collateral itself. entirely apart from
I its intrinsic value. is under legal douot
because Of the proceedings in the United
States courts 20 dissolve the company
Further. Northern Securities stock itself
chiefly represents not actual property Gi-
rectly. but stock Of other companies de-
posted with Northern Securities shares
at high valuations. as q basis for its own
capital issues.
The Union Pacifc's holdings Of North
ern Securities shares came TO il through
its ownership Of Northern Pacific stock.
were issued on a basis OF 115. While the
Union Pacific is issuing at the present
time only S3l. co. 900 Of the new Oregon
Short Line bonds. il reserves the right 10
i { 81 nfal u
par on its Northern Securities stock hold
ings. Virtually, then. the course OF high
corporation finance has brought about
this rather anomalous proposition: The
authorization by Union Pacific Of $50 600
co. OF bonds TO represent ownership OF
about s777s,O0o par value OF Northern
Pacific common stock-the amount Of its
holdings deposited with the Northern Sc
curities company. All of this. OF course,
ranks ahead OF the stock OF the Union
Pacific company Itself
Northern Pacifc's stocks were issued
under the reorganization plan chiefly 10
represent the contribution OF s10.S50e0o In
assessments levied on the shares Of the
old company. That is, the holders Of the
$40, 0o0oo0 old common stock were assessed
IS per cent. and received par in new con-
mon shares; the holders OF the SIS. 900. 900
old preferred shares We're assessed 10 per
cent. and received so per cent. in new
common stock and received 50 per cent in
new preferred shares. This accounted for
issue Of sS4O0O,e00 Of the new company's
stocks, the remaining portion being issued
chiefly in scaling down the old bonded in
debtedness
1t Will be seen. then that the relatively
new device of collateral trust bond issues.
for funding purchases Of the stocks OF
other companies. which have become 50
frequent In the recent consolidation move.
ment among the railways carry the stu
dent Of railway finances a long way from
the ideas which governed the formation
Of the railway reorganization plans in
1893 and the following three or four years.
The reOrgan anization plan of the Union
Pacific railway was one OF the most adj
mirabie OF the many reorganizations OF
the nineties. The reorganizers were con-
fronted with an endless number or dihi-
cuities. not only on account Of the cornpa-
ny s relation with the government. but 1
on account OF the cumbersome financial !
plans under which the old Union Pacific /
had been brought 70 bankruptcy All this /
was swept away in the reorganization. /
and the new company had the simplest /
possible capital organization-one- issue of /
bonds and preferred and common stock. !
It's present financial organization has not 4
yet become complex. but with its issue Of /
stocks and moTtgage bonds OF convertible !
debentures and now of participating /
bonds, it is obvious that the company has /
departed g long way from the principles |
which governed the financial scheme at /
the time Of the reorganization.
1t viii seem rather curious that the ore /
gon Short Line company itself. which |
has been now virtually merged into the
Union Pacific. should have been so direct
" concerned in this growing complexity /
OF the Union Paclhc's finances. Appar-
entity the ghost Of oregon Short Line VIII /
not down In former days it had much to
30 with the early downfalls OF the North
ern Pacific railway. Separated from that
alliance. its history remained fun OF Vi
,issitudes. Attached % the Union Pacific,
under the administration of c. F. Adams.
4 succession Of projects for It's develop
nent built up floating debt for the
Union Pacific which was IN large part
responsible for the receivership OF that
company. The Union Pacihc admlnistra-
ion Of that time had undertaken an ex-
ension OF theOregon Short Line TO Port
ard. Oregon. and an extension southwest
II Salt Lake City toward the Pacific
,osst. When the receivership came. sew
raj millions had been spent on these
lew works but they remained uncompiet-
d and The investment practically lost.
The right Of way 70 Portland Is said 70 be
low coveted By Mr.. Hiu and the right OF
way from salt Lake 10 the Pacific coast
ras encam mped upon by Senator Clark and
Is associates n their Salt Lake City and
-os Angeles railway pre5cct until The
Inion Pacific management bestiTred itself
. complete the abandoned line.
IN this Northern Pacific operation. ,he
)regon short Line g. again brought for
yard Just as n The issue q the 500 -. 1es
-nion Pacific couv ertibte bonds. the com
any's securities he'd 81 the Union Pa
nc formed a part % the plan undey
vhlch the convertible bonds ~ere issued /
2ut this utilization q a company whose
ot.ng securities have been virtually az
eposlted with the Union Pacfsc. by issee
2 its oar stocks ard bonds. is not the
sast Interesting q THE ideas brought for
.ard IN The issue - these res parfl-i-
a1ing bonds for funding a foauHg def.t
nd secured - deposst II a Minority q
,orthern Pacific shares