Evening star., 1932-05-23
RAILROADS SAVED
WITH REF|NANC|NG
Interest Expenses Reduced
Through Finance Corporation
DebentureS.
BY FREDERIC ]. HASKIN.

The Reconstruction Finance CorpO-
ration, the $4,000, 100000 organization
created by Congress at the instance Of
President Hoover to set an example
to all other. American business in lead
ing the way out of the depression, has
found a vSrkable scheme for saving
probably a score of railroads and in
Vulnerable other properties from col
lapse under too burGeaSCme interest
Charges.
The corporation is reported even now
to be negotiating with railroad cor
porations suffering temporary financial
difficulties for an exchange Of securities
which will tighten interest charges for
a while and safeguard the body of the
property in the interests of the cred
itors.
The plan is as follows: The railroads
of the country have a heavy bonded
Indebtedness outSt2 nding, although
one which is regarded as sound in rea-
sonably normal times. The heavy fall
irg off in prices and the selling wave
which has swept the country have
Cashed the quotations of many OF these
bonds downward. Moreover, the gen.
eral Slackness of business has injured
the earnings of the carriers seriously.
The highways built at public expense.
have taken. through passenger bus and
IllOlUI u uCh lldlllC, q NdSI GlllOuA40 VI
business away from the carriers, which
had to construct their lines at private
expense. No taxes have to be paid in
many States and counties for the high
way rights of way but the railroads are
the largest taxpayers IN the country.
Pipe lines pumping oil and gas for
long distances have taken hauling busi-
ness away from the rail lines. vast
amount of coal-carrying has been dis
placed, at the expense of the railroads,
by the construction of high-tens1on
transmission lines over long distances
for the transportation Of electrical en-
ergy. A new pipe line development is
ercroaching on the grain-carrying
business of the roads. Wheat is being
sent through pipe lines for mere frac-
ton OF the cost Of shipping by rail
and even by water.
The grain is fed into the pipe line
mouth and then stream of compressed
air is turned on. The grain continues
to feed in at the Shipping point and IS
carried along, suspended in the swift
air current, falling out, hundreds OF
miles away, at the point Of destination.
The time saving is tremendous. but the
money saving is as great. A wheat pipe
line will send wheat over given dis
tance for 2 cents bushel. whereas the
cost Of railway transportation would be
nearer 20 cents.
Would Reduce Interest Expense.
Realizing such extraordinary facts to
have placed the railroads at a disad-
vantage, the Reconstruction Finance
Corporation has found a way for them
to reduce their interest expense. It
proposes to buy their bonds, giving
debentureS of the corporation in pay
mr. MT pO11 1rno &c a :
cent and this crushing burden Of outgo
is swapping the carrier corporations.
The average market prices CT bonds OF
this character is around 50 per cent of
face value
1t is proposed that the railroads buy
in ct the market as many of these
bonds IS they can and advances will
be made to them by the corporation
to assist them in so doing In addition, :
the railroads are to address their stock
holders. Offering to arrange for a switch
Of their deteriorateci bones to the re-
ccnstruction body. which viii give the
tcndholdcr, in return, the corporation
dcbartures.
1t will mean a loss of interest to the
bondholScrs, but he can. by making this
exchange, be certain Of at least 3 per
cent en- his money, as the corporation
cebenturcs will have the backing of
the Treasury. A large part of the in
tere5t load will be taken off the shoul-
Gers Of the carriers.
The corporation and the railroad. in
proposing this refnancing en- lower
interest basis. are expected to offer to
reluctant bondholders the alternative of
railroad receiverships, forced by inability
to pay the whole interest. In the event
of such receiversllips. the bondholders
would get nothing instead Of the PEI
cent Government debenture.
Such an emergency move is regard
ed as necessary, in view of the losses
the railroads have suffered to stave
off score or more receiverships which
would mean far-reaching losses, likely
to grow into general panic The latter
effect would be due to the fact that
many trust funds are invested in rail-
road bonds. The insurance companies
have something like $4,000, 100000 of
them. Were these to deterlorate in
value further. the insurance companies
themselves would suffer loss of the
public's confidence, with possible dire
results.
On February 20, 1898. the Philadel-
phia and Reading Railroad failed. This
collapse of one railroads credit precipi-
tated the panic Of '93, which swept the
country 1t has been estimated that