Opinion ID: 1483191
Heading Depth: 1
Heading Rank: 15

Heading: Stephenville and Central Arkansas Appeals.

Text: Horace A. Davis and others, as Protective Committees for bondholders of First Mortgage bonds of Stephenville North and South Texas Railway Company and of Central Arkansas and Eastern Railroad Company, respectively, appeal (Nos. 12,884 and 12,885). Each of these companies are wholly stock owned subsidiaries of Debtor and as such filed petitions for reorganization in connection with Debtor. Each had its First Mortgage bonds outstanding, respectively, Stephenville $2,423,000 and Central $1,085,000  each issue being secured by mortgage upon all the property of the particular road. Payment of these bonds was guaranteed by Debtor. These lines have been abandoned; and, under order of the District Court in this proceeding, the entire property has been sold and the proceeds paid over to the holders of the bonds  such payments aggregating $188,096.89 to Stephenville bondholders and $152,768 to Central bondholders. No interest has been paid since July 1, 1935. Because of the guarantees by Debtor, each of these bond issue holders has been made a separate class (Classes 18 and 19) of creditors by the District Court. The Plan provided (in round figures) for $37,500,000 indebtedness and $37,500,000 of stock (divided equally into $18,750,000 preferred and common). As to claims which were not taken care of by new bonds or preferred stock, the Commission stated (original report) as follows: The remaining $5,000,000 of new common stock should be distributed to the holders of the Central Arkansas & Eastern bonds, the holders of the Stephenville bonds, and the holders of general and refunding mortgage bonds in proportion to the unsatisfied principal amount of their claims, after deduction in the case of the Stephenville bonds of the estimated amount to be recovered upon salvaging the remainder of the line when abandoned, which should be paid in cash on reorganization. The principal amount of each $1,000 bond of the Central Arkansas & Eastern Railroad Company has been reduced through payment of the sums realized from liquidation of all the property to $859.20, producing a present total of $932,232 for the original $1,085,000, principal amount, of the bonds. The principal amount of each $1,000 Stephenville bond has been similarly reduced to $956.85 by payment of the sums realized from liquidation of a part of the property. It may be assumed with sufficient accuracy for the purposes of this reorganization that upon liquidation of the remainder of the property, the principal amount of each $1,000 bond will, through application of the sums thus realized be reduced to $859.20, the sum to which the principal amount of each $1,000 Central Arkansas & Eastern bond has been reduced. Thus, each holder of a $1,000 Stephenville bond should receive $97.65 in cash and new common stock on the basis of a remaining claim of $859.20 in principal amount for each $1,000 bond, or $2,081,842 for all $2,423,000 of the principal amount of the Stephenville bonds. In its supplemental report, the Commission stated as follows: Claims that cannot be taken care of by the issue of new bonds or preferred stock comprise $932,232, exclusive of interest, for the Central Arkansas & Eastern bonds, after credits for the distribution of the proceeds of salvage recovered on abandonment of property, $2,318,448, as of December 31, 1940, exclusive of interest, for the Stephenville bonds after similar credits in part, and $33,267,374, including all overdue interest, for the outstanding and pledged general and refunding mortgage bonds. The Stephenville claim would be reduced to $2,256,882 after further credits for the share of the holders of outstanding bonds in the $66,241.25 of deposits to July 12, 1941, of proceeds from sale of salvaged material and lands. The general and refunding claim would be reduced to $33,092,979 by application of the share of the holders of general and refunding mortgage bonds in the $278,300 of interest due January 1 and July 1, 1936, on second-mortgage. income-bond certificates paid to the trustee of the first terminal and unifying mortgage. But the amount of new common stock available is only $18,750,000 in all; and of that amount all but about $5,000,000 which appears to approximate the capitalizable value of the free assets, including the debtor's equity in collateral pledged with the Railroad Credit Corporation, is allocable to the holders of general and refunding mortgage bonds in recognition of their liens. The remaining $5,000,000 of new common stock should be distributed to the holders of the Central Arkansas & Eastern bonds, the holders of the Stephenville bonds and the holders of general and refunding mortgage bonds in proportion to the unsatisfied principal amount of their claims. The total principal amount of all general and refunding mortgage bonds outstanding and pledged is $39,557,500, against which have been allocated thus far $7,208,742 of new bonds, $11,937,571 of new preferred stock, and $13,750,000 of new common stock, a total of $32,896,313, leaving an unsatisfied balance of $6,661,187. The remaining $5,000,000 of new common stock should accordingly be allocated on the basis of total unsatisfied claims for principal of the holders of Central Arkansas & Eastern bonds, the Stephenville bonds, and the general and refunding mortgage bonds, of $932,232, $2,256,882 and $6,661,187 respectively. There would thus be allocated $473,200 total, or $436.13 for each $1,000 bond, of new common stock to the holders of Central Arkansas & Eastern bonds, $1,145,590 total, or $472.80 for each $1,000 bond, to the holders of Stephenville bonds, and $3,381,210 total, or $85.47 for each $1,000 bond, to the holders of general and refunding mortgage bonds. The additional allocation heretofore referred to of $13,750,000 of new common stock to the holders of the general and refunding mortgage bonds in recognition of their liens would amount to $347.60 for each $1,000 bond. The total of common stock allocated to the bonds of the several issues would thus be $18,749,961. The cash distributable in respect of pledged Stephenville bonds ratably with outstanding bonds of the same issue should be deposited with the mortgage trustee of the new mortgage.