Evening star., 1933-02-04
IRA|L LOANS AWAIT
| NEW LEGISLATION
Further R. F. c. Credits to
Be Based Upon Action
of Congress.
Spcial Dispach to The Star.

opCidl blSpdCN 10 Inc star.
NEW YORK, February 4.-The
growing objection to continued loans
by the Reconstruction Finance Corpo-
ration to. railroads with am Sunsound
capital structure has been pointedly
brought out in the resolution of Sem
ator Couzens, chairman of the Com
mittee on Interstate and Foreign Com
merce, that no such loans shall be
made by this Government agency until
Congress otherwise provides
The meaning Of this is that loans are
to be deferred pending the adoption by
Congress Of the bankruptcy bill The
provisions of this bill relating TO rail-
roads are extremely liberal They per-
init carriers to file a petition in the
Federal courts indicating that they are
either insolvent or unable to meet their
debts as they mature and that they de-
sire to effect q plan of reorganization.
Immediate Action Urged.
The House Judiciary Committee in
making its report few days ago urged
the immediate enactment Of the bank
ruptcy bill because of situation that
confronted many railroad organizations
in the country that have reached the
limit of their ability to borrow from
the Reconstruction Finance Corpo-
the CouzenS resolution in connection
with loans that have been applied for
in behalf of the Missouri Pacific Sys-
tenn, which has series of maturities
falling due in the next two months,
reaching their maximum amount on
May l in the S34 4.500,000 of 4 per cent
obligations of its ST. Louis, Iron Noun
tain & Southern River g. Gulf division.
The latest statement of the Recon-
struction Finance Corporation showed
that loans made to railroads during the
life of this organization were over
s272,000,000. This is less than half the
amount granted to banks and trust
companies, but the liquidation of bor-
rowings by financial institutions has
been on substantial scale, while 1t has
been difficult for carriers to make a
reduction in their loans. They are now
faced with the problem of exhausted
collateral Of type that would be ac-
ceptable to the lender.
There is constant criticism of sup
porting weak financial structures with
loans on which the ultimate loss may
be- considerable. It is known that
within the Reconstruction Finance Cor
poration there is a strong body of opin-
ion that the time has come when the
roads that show no promise for per-
manent recovery on the basis Of their
present debt should face the realities
of the situation and they and their
bankers make a strong effort to re-
organize under the provisions Of the
proposed bankruptcy act
Changes in Industry.
Certain fundauental changes have
been taking place in the transportation
industry that play an important part
in determining loan policies. These
changes many railroad executives re-
fuse to accept, although they are as
vital to the industry as those recently
exposed in the field of amusement en-
terprises. They involve facilities that
are permanently in excess of require
ments and, also, freight and passenger
rates that cannot be maintained at
their present level and meet the compe-
tition of new transportation agencies.
It is generally accepted that there
are between 10000 and $4,000 miles OF
railroad in this country that produce
no net profit to parent systems: The
traffic that formerly justified them Is
now absorbed by motor trucks and mo-
tor buses, as well as by private auto
mobiles. On the other hand, there is
a large amount of bonded debt out
standing against this mileage and its
appurtenances on which heavy fixed
charges must be paid.
The present debt structure OF the
railroads is also predicated on rates for
service that are approximately as high
today as they were when the general
commodity price level was at its peak
decade ago and before the element
of outside competition became prob
lem. It Is obvious that there must be
a change downward in the rate struc-
ture and that this reduction cannot be
balanced by further wage cuts.
The net result is that roads that are
structurally weak as to capital, because
of extravagant outlays for new facilities
or for the purchase of additional
properties at high prices, cannot main
tain a solvent position out of their own
earnings in the face of permanent
competitor as aggressive as the motor
cars and the inevitable reduction in
their average ton mile rate for freight
and in the rate per passenger mile.
The only way in which such proper
ties can survive and operate efficiently
is through a scaling down Of their debt.
Further loans to them by the Recon-
struction Finance Corporation simply
put off the evil day, and. at the same
time, add to the country's tax bill.
(Copyright, 1889