New-York tribune., 1920-05-09
In Event of Foreclosure

Sery Sens. we'll op'; pHstsa 3D. in regard to railroad
ton as o0'a TO what ae sSs To get ssme nforms
would be In the event of roreclosure and
sae; nstd w Me9ld the frat mortgage bonds be
maturity in case the proceeds Of. the Seu sale 10
honS mere enough to cover the face of the
mortsase ] be other oan,%sras %erds would the rst
IN me property could be sold for the face
tunor ine hlnodfgageg In the event that the
interests mt by bidding In the property could
e .ns holders OF frat mortgage bonds be
oas,ed f,ast up9n to help finance the holders Of
questions | am thinking Of tho Denver ,ness 8
bonds Do you think at the present price
OF 80 there would be any risk OF the
e5hha'iPal 5has Price TsagFsS % % to purchase them at
Answer-Much depends upon how
badly off railroad is as to the mode
OF procedure to be followed in the
event OF foreclosure If the railroad
is unable to,pay the interest on any Of
It's bonds, as happened in the case of
the Pere Marquette in 1914, very
drastic reorganization would result. In
thls case sixteen issues of bonds were
IN default. The property was sold at
auction to representatives of the re-
organization committee. 1t was found
that S16,o00,o0 in cash was necessary
TO finance the road. Therefore $6,O0O,-
ooo OF first mortgage per cent bonds,
100000 prior preferred stock and
S2o,oT5.4OO common stock were sold to.
purchasing syndicate for S16,OpO 900
cash. In the case of this reorganiza-
ton none of the bonds outstanding on
the old road remained undisturbed
Every issue was exchanged for new
securities. In some cases first mort
hal
IN the new company for their bonds.
We cite this instance as one which
called for drastic reorganization. The
road was not even earning operating
expenses and heroic treatment was
necessary. When the Wabash was re-
organized the first mortgage per cent
bonds and, indeed, the second mortgage
. per cent bonds were not disturbed
There are to-day several roads in re-
celvership which are paying the inter
est on some of their bQnds-for in
stance, Missouri, Kansas & Texas, Texas
4 Pacific and Toledo, St. Louis & West
ern. So far as the Denver & Rio Grands
is concerned, 1t is q case of a Judgment
having been obtained against the road
This Judgment is Junior to the liens on
the property. If the Equitable Trust Com
pany should desire to have this judg-
ment satisfied it could have the prop
erty sold at foreclosure. In that event
committee of bondholders, in all prob
ability the refunding per cent bond
holders, would be prepared to buy the
property. 1t might even be found that
the 7 per cent adjustment bondholders
would be prepared to protect their in
terests. If the price obtained for the
property was sufficient to care for all
the bonds and nothing more, then the
judgment would be worth nothing, nor
would there be any equity for the
stockholders. The Denver & Rio
Grande has actually earned its fixed
charges during government operation.
The first mortgage bondholders have
nothing to fear, in our opinion, from
any action which may be taken to sat
isfy the judgment. Nor do we believe,
in the event of reorganization, that
the bonds would be disturbed. They
would not be paid off before maturity.
The status of the lien would remain
the same. 1t is only a matter Of change
Of ownership.