New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1921-08-11
Divisional VS.. General Mortgages

e2ucstioh-l snail be much obliged II
you viii Give me your opinion and any In
formation thereto on the following point:
While there are instances where a railroad
divisional first mortgage Is not to be pre-
fcIrcd to general mortgage on tho whole
property. as a rule 1t would appear that
first mortgage divisional bonds are to be
selected in preference to the general mort
gage bonds of the same railroad. Now.
what the writer Is getting at is. what are
the points to look for in deciding whether
a divisional mortgage Is or is not to be
selected IN preference to general or re-
funding issue? For instance as an ex-
aampie let US consider at random the
Cleveland. Cincinnati Chicago & St. Louis
the Cincinnati. Wabash < Michigan u9n Raj.
curity to the general 49, due 1888? The
MAJ Aet docs not indicate this, for the first
t pond IS quoted at o21s to Ga. whereas the
general mortgage bond Is quoted at 66i
70 %. Or. take the ST. Louis divisional
ilrst collateral trust As. 1890, quoted at C5
TO Sc, which is practically the same Weld
Cairo divisional first As, 1889, at 72 TO "a.
eiso present possibilities for an exchange.
oiihliar selected cases might be pointed
out While it Is reported that The Nj
souri,. Kansas s: Texas Railway reorpantya
i ipH "ii !. upset some OF the theories prcva-
Ioh. as 10 tho dcsrablity of divisional ia
S S. ~ must be remembered that the
l1'lsrn roads were built up on an enttrelv
diferent basis from the Western roads ~
.""s me ono constituted a merger OF a
Y Yorh OF properties such as the New
ot 1nN. New Haven g. Hartford. and the
I. conceived ~
II. +. B. uhlt'-
Answcr-The best test that we know
u as TO the value Of a divisional bond
is a careful study of the relation If
the mileage on which the bond is
. 80 o. llen 20 the operations Of the svs-
sional bond is mortgage Is an n' a Irs,-
luteiy essential part of the operation
OF tne more important parts of the
system 1t is unlikely to be disturbed
even IN drastic reorganization. ana
IN IN such case it has a greater security
IMAM general mortgage on the svs-
tenn, which is subject to an average of
we Will say, $4,000 mile prior liens.
Market price does not form good
criterion of the value of bonds unless
the bonds are actively traded at fra
quent intervals. With nm inactive d.
vlslonal mortgage bond there NAV be
variations OF as much as points or
more between sales, representing the
greater or less urgency of either the
sale or the purchase In the instance
that you cite the Cleveland, Cincinnati.
Chicago G. st. Louis, Cincinnati, Wa
bash & Michigan divisional first as are
secured by q first mortgage on 2o4
miles of road from Rushvillc, Ind. to
Benton Harbor, Mich. Benton Harbor
is on Lake Michigan. The piece of
line from Benton Harbor to a connec-
ton with the main line of the New
DIRK Central G. Hudson River at Niles
IS probably a valuable piece Of line
from traffic standpoint, but it is not
the only line from the main line of the
New York Central to Benton Harbor,
and from Niles south to Rushville the
line is somewhat wandering one,
which, after it leaves Goshen, touches
no important cities and is paralleled
for good part Of the way by the more
important line from Michigan City
down to indianapolis. All such studies
as these are hypothetical, of course,
but our own opinion, after having fol-
lowed with good deal of care and de-
tail all of the more important railroad
reorganizations since 1908, is that the
Big Four general 4s, due 1898, are a
superior security to the Cincinnati,
Wabash G. Michigan divisional first as.
The original plans for the Missouri,
Kansas Texas reorganization would
have treated divisional mortgage bond
holders pretty strictly on the basis of
the value of the division to the opera
ton of the system as a whole, but the
latest plan under consideration treats
the Missouri, Kansas e. Eastern we'll, we
believe. There is not a great deal of
difference in the principles of Western
railroad and Eastern railroad reorgani-
cation. we think. You mention the
New Haven. If you care to look in one
of the manuals and study the Boston {;
Maine reorganization we think you
will be inclined to agree with US that
the leased lines, which are analogous
to divisional mortgages in many cases,
were treated with stern justice