The sun. [volume] (New York [N.Y.]) 1833-1916, 1915-03-06
Running the Railroads Into Debt.

Running the Railroads Into Debt.
There is rejoicing In the portion OF
the business community most con.
cerned with the financing Of corpora
tionS over the improved prospect for
providing railroads with capita;
through the sale Of long time bonds
AZ a asonable ate of interest. For
several years past the carriers have
been forced to resort 20 the CONNER
cial money market 10 obtain their
fund, through the issue Of short time
notes. and these temporary ~expelients
have resulted in a threatening ac-
cumulatiou Of embellishments. II
note issues can liz largely done away
with and railroad financing l. put on
some basis ~ p~ermanence. the trans
portation industry can b managed
more In accordance with long range
and comprehensive plans.
Nevertheless there j. not too much
caus. for rejoicing in the prospective
development ~ \ ti>factory market
for railroad bonds. Capital Liabilities
of a fixed charge nature. whether ac'
cruing from the sale Of bonds or the
sale of notes. are already In too large
proportion to the liabilities which can
lee adjusted 10 suit the circumstances
~ railroad traffic and costs Of opera.
ton. The goal To be aimed ut m
railroad financing il the provision ~
capital through the sale ~ stock.
An evil relic of the earlier days II
railroad promotion and expansion *
the political obses-lon about stock
watering. Because a round amount
of bonus stock was issued In the pas
the railroads to-day find themselves
In "A position whore II j. almost i'm
possible ~ 81 stock instead Of bonds
aud notes. Politics vii! not allow
them to meet the market which would
offer for stock. Federal laws. state
laws. the edlcts of regulating commits
sionS aud the decisions NJ courts have
all tended to Il uniformity Of r%estric.
ton on the increase Of railroad stock
capitalization except through the sale
OF new shares at par or higher.
Buyers might readily be found ,or
shares at a price which would he
satisfactory from a business stand
point. The railroads would benefit hv
gy..,,f,. ,I.a,9.N ,.g ,hr.ttrh shn -.
sue ~ q class OF securities which did
not create q mortgage on earnings.
The public interest would T." served
by processes Of railroad financing
which would tend - keep down the
ever growing burden Of railroad in
debtedness. Stock which would carry
with il no absolute assurance of divi-
dend return has always found pur.
cAa>rrs who regarded the risk Of re.
ducel or passed dividends as more
/ than compensated by the probability
thar under good management the rate
Of dividend would average higher
over n series Of years than the rate
Of bond interest,
Nevertheless between a mistaken
theory Of Government regulation
which places prohibltive price restrlc-
lions on the sale Of stock and Gov
eminent regulation in practice which
has aimed at the Curtailment of rail
road revenues. the railroads have
been driven 70 raise their funds
through the issue of fixed charge ob.
legations. Offerings Of bonds and
notes can he sold through adjust.
mcnts to legal and market conditions,
either by permitted discounts from
par or by the arrangement Of rates oi
interest. As a result railroad capital
requirements which earnings must
meet have been incroa sing OUT OF safe
proportion to the requirements which
may b- ,alit-i ia order 10 meet earn
lngs.
Such conditions are wrong, They
make for more creditors and fewer
ownerS, They pile up fixed charges
a. against contingent charges and II
il under this load that railroad
finance breaks down in times OF strain
In the last year or 81 the growing
catalogue Of railroads in r~eceivershiT
Is Il list Of properties which have hr
come involved In difficulty from the
same cause, an excessive burden 81
Interest bearing obligations. Vet her
r~eorganlzers seeking TO put the Grip
pies on their feet scale down. fixa'
charge obligations, they face the ne