New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1914-07-07
SOME ROCK ISLAND ITEMS
Bondholders Called Upon to Sacrifice
Collateral, II Is Charged.
The Editor Of The Tribune.

To the Editor of The Tribune.
Sir: Another chaptcr in the unique
financial history of the Chicago, Rock
Island & Pacific Railway Company
since the tinplate promoters acquired
control. some twelve or thirteen years
ago. is now in process OF evolution ~
will be remembered that the old rail-
way company stock. after being accu-
mulated and subsequently "bulled' 20
dizzy heights, was by legcrdemain
transformed INTO an equal amount OF
collateral trust per cent bonds in new
company plus an equal amount OF new
common stock and 20 per cent in new
preferred stock in another new COM
pany. To the relatively small amount
OF preferred stock was given the priv
lcge Of olecting a majority Of the board
OF directors.
Thus .he clever but by no means
ovelscrupulous promoters could, after
carefully inspiring the public magma
tor. disrCse of all the bonds. all tho
common stock and nearly half Of the
preferred stock and still retain absO-
iutc control OF the railway company,
enabling them to consummate during
the period Of their control such highly
advantageous deals (to the sellers Is
the purchase OF the Frisco ut a high
price and its later sale at low price,
the purchase and guarantee Of div.
dends by the Frisco Of the stocks r
the Chicago & Eastern Illinois on 4
wildly inflated basis, as well as mo-
mercuS small transactions which ai-
forded other but lesser opportunities
OF profit at the expense of the COM
pany.
Altogether. the original scheme was
probably the most perfect device yct
discovered o. eating ones cake and
having L. too.
And row il is proposed 20 write the
final chapter in much the same vein az
those which preceded 1T. Last fan,
after the head OF the Rock Island opt
mistically painted the future Of the
read. specisl weakness developed IN the
collateral trust bonds As we'll as the
preferred and common stocks. The in-
Centure securing the bonds provided
that in tic event Of default the bord-
holders would. after due formal.t'cs,
obtain the railway company stock 70
be disposed If as they saw 'it. TINS
stock. which would carry control or
the company. was deposited par fer par
Of the bonds.
II is quite evident that under these
conditions more bonds could be hGui-
dated land as P matter OF fact very
large amounts Of the bonds were actu-
ally dealt in. as reference 10 Stock ~
change sheets will disclose) than could
the common and preferred shares.
which never az any time had more than
potential values under the curious
financial conditions surrounding the
Rock Island since 1901. Now corr
mittce assuming 20 represent the stock
holders and \ committee assuming 70
represent the bondholders have oglccd
on n plan which permits ard. unless
strong enough opposition cryStaluLeN
will force the bondholders 20 donate
81 per cent Of their collateral 10
sweCtcn row issue OF ngcftfrea .
stock which u is proposed 10 sell 10
the Rock Island preferred and common
shareholders and TO the collateral bond
holders themselves. The reason given
for the sacrifice is that the railway
company needs funds ard canno. lf'u,
bonds. Incidentally, the preferred ana
common shareholders. who. m the
cvent Of the foreclosure Nf the coUH,-
eral trust boGds would have no stand'
ing Whatever IN court, are permitted 70
participate in the reorganization on
what must be conceded 10 be very
favorable basis. and. as the plan - 70
be undcrwritt"n, a perfectly safe prou'
is 70 irure TO the bankers concerned.
There is no good reason. except the
united opposition OF the strong inter
osts in control. why all the money re-
CURED could not be supplied by the
collateral trust bondholders then,
selves. thus caahling them TO retain au
the railway stock instead OF donat'ns
part of it TO the preferred and common
stock holders, rs we'll rs enabling ths
latter TO secure block of prcferrru
stock priced appropriately 70 the COM
pany's needs. GEORGE RElfH
New York, July >, 1914.