The sun. [volume] (New York [N.Y.]) 1916-1920, 1919-01-19
standard for determining what rates are

standard for determining what rates are
| reasonable and fair.
The resulting uncertainty has been the
principal cause of the failure OF the
credit OF the railway companies and 1t
Is the principal source of difficulty in
estimating their prospective operating
| income and the value of their properties.
However. under the plan now pro-
posed ii will not be necessary to esti-
mate with accuracy the value OF the
railways or their prospective true oper-
ating incomes or the rates at which this
estimated operating income should be
! capitalized. 1t is not proposed to pay
for the railways in cash or its cquiva-
| lent.
New Corporations Are Favored.
The plan Is To vest tie railways In
| new corporations which viii issue their
| bonds and stocks in exchange. and the
bonds and stocks thus issued Will simply
| represent these railways. whatever their
value and their prospective operating In
| comes may NC. Under the plan now pro-
| posed an estimate OF the prospective
| operating income and of the value OF
each railway is material only In so far
! as this may be necessary (a) to limit
the proposed guaranty 10 be furnished
the relative value of the several railways
to be vested In each Federal corporation.
| so that some of the existing companies
| may not obtain an advantage at the ex-
pense of the others.
II is suggested that in ordinary cases
| the average operating income of the test
years prescribed by the Federal control
act (subject TO n deduction as above
proposed) be made prima facie evidence
OF the operating income which Is TO be
the basis OF capitalization. However.
this basis could not Justly be applied to
case in which owing 20 a receivership
or other abnormal conditions the aver
age operating income of the three test
years did not fairly reflect the earning
| capacity OF the property Each case
should he dealt with in the light of all
| pertinent facts.
| Issues for Each Rail Property.
II Is further suggested tentatively
that for each railway property vested IN
a Federal corporation there be Issued
ta) per cent debentures OF the
Federal corporation. guaranteed BY
the Government. TO an aggregate
amount that would impose an interes,
| charge equal to 40 per cent. of the
estimated operating income OF the
| property. and
tb) shares OF stock to an amount
upon which the remaining 60 per cent
| of the operating income would suffice
to pay Sc per share, the Government
| to guarantee payment of s2.5o per
! share any distribution OF income in
| excess of 81 per share to be divided
between tho Government and the
| shareholders and the Government TO
have an option 10 purchase the stock
at any time at $S5 per share.
! The distr button among the stock
holders and bondholders OF each existin 6
! railway company Of the aggregate
amounts OF debentures and stock OF the
Federal corporation TO be issued In ex.
! change for the Companys property
would have to be adjusted by agreement
OF the parties as in ordinary reorganiza-
| tons Il is, therefore. suggested that
the Federal Railway Board to be estab-
lished Dnder the plan should have fun
| power to negotiate with the directors
OF each company rad with committee,
OF security holders.