Evening star., 1943-05-30
War Revenues Help
Railroads 10 Trim
Debts Sharply
Capitol Structures
. StreumIined to Meet
Postwar Problems
BY BERNARD S. O'HARA,

NEW YORK, May 29.-The rail-
roads have been making prudent
use of their huge wartime earnings
to dehate some of the bulges in
their debt structures.
For number of the carriers 1t
has been long-term program in
volving a gradual cutting down OF
outstanding bonds. In the last year
or SO the drive has been greatly
accelerated and appears still to be
under high momentum.
Railroad executives believe the
operation will provide a bulwark
against repetition of some of the
misfortunes which beset the car
riers after World War I. culminat-
ing in many bankruptcies in the
early 1930s.
Some financial sources believed
that many millions of dollars in
railroad bonds will be taken out OF
the market this year and retired
1t will be effected. investment an
alysts say, by open-market pur-
chases with surplus funds of the
railways.
In 1912 the bonded debt of the
roads was trimmed an estimated
half billion in this way.
Bond Prices Favorable.
Providing an added incentive for
debt trimming is the fact that many
railroad bonds are selling In the
market at prices we'll under those
at which they were originally issued
and may be bought in now by the
railroads without tax penalty on the
profit or difference in prices.
The program, as far as it has gone
according to financial observers, has
been a rather startling reversal of
railroad management policies in the
old days of high finance when a
considerable part of the industry
had reputation for profligacy In
financing. But in those days the
railroads were virtually a MONOPOLY
and prudence and frugality NAV
have been regarded as unessential
virtues.
Scope Of the debt trimming move
to date is indicated by figures dis
closed by Patrick McGinnis, rail-
road security expert, in recently
issued pamphlet.
1t was shown that 18 railroads of
the highest credit rating in the 10
year period ended 1941 reduced their
fixed charges (bond INTEREST," from
s188, 100000 to s166 OOO,O 900, or 12
per cent; that IL less financially
strong systems chopped their
charges II per cent, from SIT, ,OOO.-
900 to s157,OooO0O; and that 26
bankrupt roads, under proposed or
already effective reorganiza ton
plans, would slash their bond inter-
est requirements from peak of
s222 900 1000 to 5000 900, or so per
cent.
Industrial Cuts Listed.
individual systems are estimated
TO have reduced fixed charges over
the long period as follows: Chesa
peake & Ohio, % per cent; Norfolk
d Western, 81 per cent; Wheeling g.
Lake Erie, n per cent; Great North
ern, SO per cent: New York Central
~ per cent; New York, Chicago &
st. Louis nickel Plate). 26 per
cent; Southern Railway, 13 per cent .
Southern Pacific, 10 per cent: Illi-
nols Central, II per cent.
BY proposed reorganizations st
Paul has an indicated reduction OF
II per cent, Chicago & North West
ern rs per cent, Missouri Pacific 70
per cent. Rock Island 80 per cent
Frisco 76 per cent and New Haven
SO per cent.
prominent among carriers which
topped on large amounts in interest
requirements since the start of this
year were Great Northern, Santa
re, Baltimore & Ohio, New York
Central, Louisville g. Nashville
southern Pacific, Missouri x Kansas
Texas, Illinois Central. Southern
Railway and Nickel Plate.
lSC EXeftS Pressure.
While debt cancellations of this
KIND to a considerable extent were
oy voluntary action of the carriers
pressure exerted by the Interstate
commerce Commission also was a
vital factor. The commission was
the supreme arbiter in the rear
rangement of capital structures of
the 26 bankrupt roads with its pre-
clpltant slash in bonded debts.
The commission and other high
authorities in Washington long ago
took the position that railroads
should reduce mortgage and other
prior debts wherever possible.
The interest savings accomplish
ments of the railroads have been
cited as major factor in the past
years substantial rise in the market
Tor rail bonds and shares. A theory
in financial circles is that the ap-
parent increase of confidence in rail
securities was based on the idea the
carriers, by. streamlining their debt
structures. would be strengthened
Tor the competitive battle expected
In the transportation field after the