New-York tribune., 1921-05-01

pEc5tAlt pAlCCo OA tfiS vcAiSS SS~os '>~A
ization throws some light on the sitl
The Missouri, Kansas & Texas is q
railroad system of about 1000 miles,
extending south from St. Louis to the
Gulf. It's history contains elements OF
much that made the upbuilding Of the
100000 miles of American railroads
both romantic and great industrial
achievement, and also of much that
made this history occasionally scan
dalous. The reorganization, however, is
unique.
Most railroad reorganizations are a
compromise arrived at after q more or
less prolongfd Il trial Of strength amor I;
many and v rious financial interests at
fected. There is plenty of variety and
conflict in interest in the Missouri,
Kansas g. Texas case. Speyer & Co,
have underwritten and sold in times
past Missouri, Kansas & Texas securi-
ties, and so have other banking houses.
Before the war both bonds and stock
of the Katy" were held in England,
Amsterdam, and the underlying bonds
were held by institutions as we'll as
private investors pretty well through
out the United States. The usual pro-
cedure, when receiver is appointed
for a property like this, would have
been long-continued game of test of
strength between the stronger banking
houses and large institutions interested
in the property.
Two of the banking houses con-
cerned, however, working with the
chairman of the board of directors of
the railroad company, conceived the
80 koc rafirOcH
tion on the inherent equity and justice
of the situation as determined by ac-
tual tests. Seligman G. Co. and Hall
garten & Co. undertook to work out q
plan based on study of the actual
earning power of each one Of the lines
which go to make up the system. The
Missouri, Kansas & Texas is plastered
with mortgages, each securing-or fail
ing to secure-a particular issue of
bonds.
Many Securities
The ingenuity shown in hooking
g. Texas system is beyond the flight of
Imagination of any but the most
skilled corporation lawyer. There are
first mortgage bonds, second mortgage
bonds, divisional bonds, terminal
bonds, general mortgage bonds, con-
solidated mortgage bonds, refunding
mortgage bonds, subsidiary companies
bonds, collateral trust bonds, not to
mention equipment trust certificates of
many vintages. There are twenty-six
varieties of securities.
The details OF the reorganization
plans are far too complicated to go
tains departure from the older
methods of American railroad finance
that are worth understanding.
The formation of the plan of re-
organization was based on scientific
principles without regard to financial
pressure and influence. The Missouri,
Kansas G. Texas had been through re-
organization and receiverships before.
When Frank Trumbull began work on
it at the age of twelve as a water boy,
there were working in subordinate po-
sitions Thomas Scott, then a general
superintendent, later famous presi-
dent of the Pennsylvania Railroad;
William Mahl, curiously enough in the
mechanical department, later the dean
Of railway accounting offices, right
hand man to Coils P. Huntington and
still later Harriman's vice-president in
charge of accounting; Grenville M.
Dodge, of Union Pacific and Civil War
fame, and a number of others since be-
come distinguished citizens of the
United States.
AS these men began to make their way
in life they scattered General Dodge
and Mr.. Trumbull created the Colo
RADIO & Southern. The katy" was
left the prey of speculative railroad
expansion. Edwin Hawley eventually
got control of it, but actually owned
only small part of the companys
stock. He put an old-school railroad
man, A. A. Allen, in as president and
the career of the "Katy" was typical
of Southwestern road headed for re-
ceivership, but exceptional in the un-
canny ingenuity and versatility shown
in finding something new to mortgage
to stave off the evil hour.
In 1912 Edwin Hawley died and the
the banking interest IN this country
represented by Seligman & Co. and
Hallgarten e. Co., asked Frank Trum-
bull, who had comparatively small
personal holding in the stock of the
Missouri, Kansas G. Texas but who
was a director of that company and
was chief stakeholder and chairman OF
the board of directors of the Chesa-
peake & Ohio, to become the active
head of the management of the NJ, Z.
& T. He accepted and immediately
to c. E. Shaft, vice president in charge
of operation of the Lake Shore &
Michigan Southern. Rather jump
for Mr.. Shaft from the wealthiest and
most economically operated large rail
road property in the Eastern United
States to the presidency of an over
capitalized, down-at-the-heels and un-
scientifically managed Southwestern
railroad.
AS sound a financial scheme was
adopted as could be worked out with
the existing multiplicity of bond
issues outstanding. Modern locomo-
tives were ordered, rather on the
strength of the persona1 credit of the
new management, than that of the debt
incrusted railroad. Public opinion in
Texas and in Kansas--those two most
rabid of all Southwestern anti-railroad
states-was propitiated. So successful
was this that the president of the
Farmers Union, Texan, issued a
statement urging more liberal treat
ment Of the railroad by state commits
sions.
Many Difficulties
No one could adequately describe
the difficulties that stood in the way
OF a more scientific operating program
Labor in the Southwest was so scarce
that IL Was "a farra ~ Gra xn,~ 10