Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-23
SEABOARD AIR LINE
WOULD SLASH DEBT
RecapitaIization Plan Calls
for Material Reduction in
Present Obligations.
Special Dispatch to Tn. star.


NEW YORK, June 2.-Since Tho
announcement of the disqualification
plan for the Seaboard Air Line Railway
Co. on May %, designed to simplify
and strengthen the financial structure
and enable the road to meet funded
debt maturities over the next five years
through the exchange of its $25, 900 ,o0O
adjustment bond issue for other Secur-
tiles and the raising of 81 500 900 addi-
tional capital through the sale Of COM
mon stock, the market prices of Sea-
board securities have substantially de-
clined. This development has tended
to create public misunderstanding OF
the actual benefits that will result from
the recapitalization.
Based upon the market prices of the
Ssaboard consolidated IS. 1945, and
the common stock which holders Of the
adjustment IS will receive in exchange.
1t appears that to equaliZe the market
quotations, each $1,000 adjustment
bond is selling at present $127S0 too
low.
Details of Plan.
Before this condition can be explain
ed, it is necessary to state the details
Of the plan. The plan has the following
detectives: l. debt reduction of ST.
soc, 900 through substitution of Sl2,-
100000 first and consolidated bonds for
S25 900 900 principal amount of adjust
ment bonds plus 100000 accumulated
unpaid interest 2. Debt poStponement
Of S17,374,528 through reducing matur-
tiles over the next five years. 3. The
receipt of new money through the sale
of $500. 900 common stock. 4. yearly
interest saving of at least $3.50, 600 OF
ftnn
of the adjustment bonds. s. Establish
ment of a credit position permitting
further financing through the sale OF
common stock or bonds. The common
stock would be change from 500 par
value to no par value.
Now the holder of each 81 900 princi-
pal amount adjustment bonds accom-
panied by coupons SO and 81 and sub
sequent coupons, are offered $500 prlnci-
pal amount first and consolidated SIS,
1915: Is shares of no-par common stock,
and subscription warrants carry in the
right to purchase 10 shares of common
stock by June l, 1881. at $50 a share;
by June /, 1882, at SIS, and thereafter,
to June /, 1884 at $40 share.
The interest payments on the ad-
iustments are contingent on earnings
and the unpaid interest accumulations,
including the period ended April 30.
1929. totaled 20 per cent. Under present
conditions 1t is evident that resumption
Of payments on the adjustments in the
near future Is not probable. 1t would at
the outset seem advisable for the holders
of the adjustments TO accept the new
issues offered for their bonds. Tor II
would mean the immediate receipt OF
$50 interest year on each $1,000 con-
solidated & per cent bond. The market
value of the securities to be received
In exchange is likely to be current mar
ket value of the adjustment bonds.
Senior Bond Provisions.
One point in favor of the senior bond
holders. under the proposed plan is that
there will no doubt be permanently
eliminated the fear of a drastic reor-
ganization. which, under present conal-
tions would be continued possibility.
The receipt OF new capital through the
sale of stock and the elimination OF
many early maturities favorably m
creases the equity of the bondholders.
1t Is logical that some value should De
placed upon the subscription warrants.
NOW as to the market position OF the
securities. Based upon the market
prices when the plan was announced;
the Indicated value Of the Consolidated
Is and the common stock to be received
abo,lt 1915 against q market value OF
$3.50 for each 81 1000 adjustment bond.
At the close, May %. the consolidated
6s were rs. the adjustments At and the
common 1915. Last Thursday the
adjustments were Al, the 6s 20 ana the
common. 1915. Now each $1,000 adj
ilstment bond has q market value OF
$40. In exchange. the holder OF adj
justments received $500 face value con-
solidated IS $50 per cent having
market value of $3.50. He also receives
Is shares OF common having m ma
value cat $3.50 of $137.50. His IS
and common stock have value OF
S537 so, and deducting the s410 value
Of his adjustments, he has profit OF
S127. so. However, the IS he receives
have a market value OF $3.50, which
would leave $50 to represent his 10
shares Of common. or "a share. The
adjustments are selling $12750 under
the market value of the securities he
would receive. 1t would appear then
that the adjustments might increase
Sl27 so: the consolidated 6s go down;
the common decline. or both the IS
and the common 60 down.
Holders of Seaboard adjustments and
common stocks should bear In mind
that an intensive survey OF the Sea-
board was made by one OF the most
competent firms of railroad engineers In
the United States, firm that has been
connected with practically every rail-
road reorganization in the country for
more than a decade. The conclusion
was reached that the Seaboard, ira
versing six of the most prosperous States
of the South with the shortest line
between Richmond and Florida, but
having suffered the boomerang OF the
land boom in Florida, could
be placed upon q sound earning basis
through changes IN operations ana
Republication. ,l..
Dependent on Earnings.
The contamination of the plan Of
decentralization, of course, is dependent
upon earnings. But Seaboard has
turned the corner and economies
by the engineers are now
being reflected in gradually increased
earnings. In May the operating reve-
nues of the road showed an increase OF
about $349, 900 or 7.3 per cent In May.
1928, gross was $4,770,977. The in
creases in general were in commercial
freight, fruit, vegetables, lumber and
log shipments. In the first five months
of this year operating revenues in
creased approximately 81 100000. Earlier
in the year 1t was estimated that this
wears increase in gross over 1928 would
approximate $4,000 600.