Evening star., 1932-05-21
FRENCH REDUCING
i. S. INVESTMENTS
Paris Government Has Con-
SiStentIy Cut Down Ameri-
can Commitments.
Special Dispatch to The Star

NEW YORK, May 21.-The an
nouncement that the largest of the
privately-managed French railroads
will pay off next August its 6 per cent
dollar bonds fioated in this country 10
years ago. and at premium of per
cent over par, indicates the degree to
which the French government. which
guarantees these bonds, is reducing its
American commitments. 1t is assumed
the bonds will be taken up from French
balances in the United States
Originally there we're $4,000, 900 Of
the Paris-Lyons-Med IS. The
outstanding amount is now about S38,-
100000. This road also has an issue
of per cent dollar bonds sold here in
September. 1924. and callable on or
after September Is Of this year. 1t Is
believed this loan will be paid of. al
though the actual maturity falls in
1858. Next March there are 10,750 900
of Paris-O Orleans 512s callable. and in
October. 1884, loan of $4,000 900 OF
Nord Railway 6l2s may be paid on the
option Of the company.
Total Commitments
Including the two Government loans
Of $l00, 900, 900 each, the French Repuo~
lie has had outstanding dollar bond
commitments of approximately $685.
0000 000 When the Paris-Lyons-Medi
terranean per cent loan is Cancelled
these will have been Whitfield down to
about S215 100000. This does net tell
the entire story. however. as the French
government and private investors in
France have been steadily buying back
these dollar loans for several years. 1t
is the judgment of French bankers that
more than half Of the present outstand-
ing sum in dollar bonds is now held
abroad. BY annual redemptions the
two government loans have been re-
duced from 5000 900 900 to $3.50, 900. 900.
In view of the increasing problems
of American railways and evidence Of
growing trend in some quarters for
Government ownership or direction, 1t
Is of interest to outline the status OF
the French carriers growing out of con-
ventionS that were created shortly after
the war. BY these agreements the roads.
with one exception, remained under
private management. Theysare operated
by an elected staff Of directors and off,
GERS. On the other hand, their credit
position in 1918 being similar to that
of the American roads, 1t was found
necessary by the French government to
stand behind them and provide certain
guarantees on which they could borrow
in the United States in order to re-
habilitate themselves after the destruc-
ton to their physical properties from
1918 to 1919.
The loans in dollar form negotiated
here, while a direct obligation of the
individual railroads, are, in effect
guaranteed by the French government.
Under the terms of the convention be-
fvynay
ment a common fund" was created
somewhat similar in nature to the
revolving fund" that has been, at
different times, applied for the bene-
fit Of American roads and into which
fund any excess receipts, over an arbi-
trary basis, of any of the systems are to
be paid. From this fund the French
government has undertaken to make up
deficiencies. The French government
also agreed to assume the entire in
terest and amortization charges on any
of the railroad bonds outstanding at
the expiration of the convention period.
Has Raised Rates.
In order to balance the budgets Of
the French railroads the government
has repeatedly used its privilege of
raising rates on passenger and freight
traffic. This, for a time during the
recent boom period, allowed some OF
the stronger French lines like the P-L-
NJ, the Nord and the Est to show q
profit over their fixed charges and
dividends and permitted a contribu-
ton to the common fund" Over the
past 10 or IL years, however, the
French government has, on the aver
age, been forced to assume financial
responsibility The fact that the bonds
of the French railroads issued in dol
lars have maintained a premium posi-
ton here in spite of earnings that were
only relatively better than those Of
American, British or German carriers
has been due to the guarantee pro-
vision placing them practically on an
equality with French government loans.
Had American railroads stood in the
same relation to the United States
Treasury the past year as French roads
to their government, there would have
been comparatively little shrinkage in
their securities instead of to 50-point
average decline that has occurred.
Whether United States Government
credit would have been as high as it
is today or Federal taxes as low is a
matter of considerable doubt 1t may
safely be said that operating efficiency
would have been considerably lower,
for even where railroads are privately
managed but publicly financed, the po-
litical influence is always bound to be
disturbing one.
(Copyright, l932)