Evening star., 1932-07-03
RAILROADS SEEKING
BONDHOLDERS' AID
Refusal of Investors to Wait
for Interest May Mean
Receiverships.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, July 2-The i'm
portance of the proposed plan that has
just been presented to the bondholders
of the st. Louis-San Francisco Railway
extends beyond the field of the securi-
| ties directly affected. for it must be
| considered test of the ability of those
railroads that are not now covering
their fixed charges to bridge over a
| period of decreased revenues by post
/ poning interest payments, with the
only alternative an era of receiverships
| The response of the bondholders of
the st. Louis-San Francisco to the
plan, by which they forego direct pay
mentS of interest for a period of five
! years, will give a clue to the attitude
of minorities in SIMILAR situations, for
1t Is understood that most of the large
holders of Frisco obligations have
agreed to go along with the scheme.
Unbalanced Financial Structure.
AS this is not to any considerable
| extent complicated by large and i'm
the case of the st. Louis Southwestern
Railway on June l, acceptance or re-
lection of the plan by bondholders will
| reflect their willingness or unwilling
ness to temporiZe with a situation in
which the main factor is an unbalanced
financial structure.
1t is realized both in banking and
In railroad circles that unless there is
an early and substantial improvement
In railroad traffic. there is likely to be
need for other accommodations by rail-
road bondholders before the end of this
year. 1t Is doubtful If the Interstate
Commerce Commission will continue to
approve loans by the Reconstruction
Finance Corporation to carriers that are
getting deeper and deeper into debt
and already have received substantial
help from the government agency
Therefore, the success of the Frisco
proposal would establish a basis for
treatment of other involved situations.
Contrary to what happened in 1914
Is and in 1896, railroads might be able
to weather the storm without going
through the expensive and prolonged
processes of bankruptcy and receiver
ship.
1t may be said that a considerable
body of holders of the junior bonds of
railroads have now accepted the
realities of the transportation situation
and are willing to make concessions in
order to preserve the greatest amount
of value for its securities However,
bondholders are not in complete agree
ment as to which of the several pro-
cesses 1t is most expedient or wise to
follow. 1t Is realized that the institu-
ional holdings of junior railroad bonds
are heavy and that receiverships and
reorganizationS would be serious to
them and to their constituencies. The
other point of view is that, where the
capital structure of a road has been
notoriously out of balance, no perma-
nent good is effected by maintaining
this discrepancy between bonds and
stocks even through an extended period
of deferred interest charges.
One important question that arises
out of the Frisco plan is the extent to
which railroads in setting up a finan-
cial program for the next 5 or 10 years
should appropriate large sums for capi-
tai expenditures. These Frisco expendi-
lures are presumably to be made out
from a portion Of the monies that are
withheld from bondholderS If they agree
to suspend payments over a term of
years. There will be no occasion for
the railroads to add to their facilities
in the next two years. They already
have thousands of idle locomotives and
cars and trackage much In excess of
requirements. 1t will take a longer
period than is now in sight to bring
all of the present unused facilities
back into full operation.
Operating Ratios.
On the other hand, operating ratios
are likely to be high for at least two
years after the turn comes. on account |
OF the deferred maintenance which has
been compelled on practically all roads |
as means of covering their fixed
charges
The alternative Of any plan 10 defer
interest payments on existing debt