New-York tribune., 1921-05-01
Bankers Opposed

Bankers Opposed
Opposed to this proposal were the
interests represented by Speyer &. Co.
Each set of bankers hired an expert "a
make an exhaustive report on the de.
ceased property Some of the discov.
cries that they must have made in "a.
gard to the utter detachment between
bookkeeping and the facts as under-
stood by the ordinary railroad officer
or employee must have heen startling,
The writer went over the property not
long after the new management took
hold of it, and discovered in the Par
sons (Kan.) yard she'll of locomo-
tive bearing freshly painted number
plate, and this locomotive" numbered
63l or whatever it was, was being car
ried on the company's books at its
original cost, less a depreciation re-
serve which had only recently been
started and was on the assumption that
this shell of locomotive was good for
some forty years more of active serv-
ice. The expert, ]. W. Hendricks, en-
ployed by Speyer 6, Co., made the usual
report. He found that if his theories
of scientific management were carried
out there was no necessity for d drastic
reduction in the funded debt
He made an estimate &C the increase
in earnings which sho~ / that in 1921
this report was maze in 1915-net
earnings would be sufficient to pay in
terest and dividends on a good old
fashioned bankers reorganization,
where everybody got lots of new bonds
and certificates and nobody made
sacrifice at all. Of course, he found
that some new money would have to be
MI svS hut l,ot Il L :,
the strength of the forecast for 1920
earnings.
The experts employed by the op-
posing Seligman- Hallgarten interests
started on a quite different assumn-.
ton. Among the multiplicity of mort.
cages covering different portions of
the railroad there was q real honest
to goodness first mortgage secured on
the main, north and south line of the
system, the real backbone and abso-
lutely necessary portion of the aggre-
cation of lines. With this as basis
a study was made based not on theory,
but on the actual happenings of the
last three years as to what each line
contributed in the way of traffic to
this main stem and what each line
would earn were it thrown out on its
own and left to operate Independent Of
the main stem. AS an example, the
Missouri, Kansas & Eastern first mort
gage so bonds are secured on the CON
nection between the main line and the
Missouri, Kansas & Texas at Franklin
junction to St. Louis, 1856 miles When
this bond was sold to investors it was
described as first mortgage
on the Katy's only connection with ST.
Louis, and as it is, but was found to
earn nothing Itself, except as it served
q hy~Yd dpra f> L
forth between the main line and St
Louis.
There were already more than enough
other good bridges spanning this un-
productive piece of territory, and the
Missouri, Kansas & Eastern should
never have been built, couldn't exist
by itself as a separate property and
was not essential to the main line
operation of the Katy. Trackage rights
over some other road could be obtained
and the first mortgage Missouri, Kan
sas u Eastern could be left with
NJ arly worthless piece of railroad run
Iiing along the bank of the Missouri
River. In the reorganization Missouri,
Kansas & Eastern bondholders, there
fcre, are to be asked to take reduc-
tion in their interest bearing securities
commensurate with the weakness OF
the physical property on which their
Gld securities are a claim. So it is
with all the other mortgages.
The reorganization is based on the
principle that when a bankrupt rai-
road property is reorganixed and the
Claims of its creditors satisfied through
the issue of bonds and stocks of new
company the respective claims should
be given the weight due to the actual
value of the property against which
they are claim and new securities
issued on the proportions thus deter
Ynined