| Est’d Capital | Fixed Charges | ||
|---|---|---|---|
| Prior mortgage liens, | $85,807,920 | $4,233,055 | |
| Annual rental of leased lines not to exceed | 2,350,000 | ||
| $6,583,055 | |||
| First preference income mortgage, | 24,410,822 | 1,220,542 | |
| $110,218,742 | $7,803,597 | ||
| Second preference income mortgage, | 26,140,518 | 1,307,026 | |
| $136,359,260 | $9,110,623 | ||
| Third preference income mortgage, | 14,956,016 | 747,800 | |
| $151,315,276 | $9,858,423 | ||
| Common stock, | 38,369,076 | ||
| Deferred incomes, $20,751,090 at issue price, | 6,225,327 | ||
| $195,909,679 |
We have now the reorganization in its final shape, and it will be interesting to review briefly the gradual way in which this shape was fashioned. With the company plunged anew into bankruptcy after a reorganization insufficient to afford any genuine relief, the proposal was made to fund one-half the general mortgage coupons for three years and to convert all junior claims into liens on income. This scheme failed because plainly inadequate to meet the needs of the situation, and a modified version was presented providing for an assessment with which to pay the floating debt. The assessment was approved, but not the plan, and an ensuing scheme supplied an altogether new method of treatment, whereby on the one hand the assessment was made more heavy, and on the other two classes of preferred stock were proposed, with one issue of bonds at 3 per cent. This plan failed, not so much because of its inadequacy, although it was inadequate, but because general mortgage bondholders felt that a 3 per cent bond was less than they could reasonably expect for their holdings, and insisted on a security with a higher obligatory rate of interest. The next plan took note of these objections: it raised the interest on the bonds which it proposed from 3 to 4 per cent; and in the endeavor to please the junior bondholders as well, created four classes of preferred stock, by means of which the relative priority of different issues was carefully and completely recognized. Assessments were retained, and a guarantee by a syndicate and a voting trust for five years was suggested. In the discussion that followed, a new scheme was introduced, which replaced the preferred stock by two classes of income bonds, and forced the managers to realize the desire of the old bondholders for some new security with at least the name of bond. As a result, the syndicate which had fathered the previous plan consented to substitute for three of their classes of stock first, second, and third preference bonds. Meanwhile the fixed charges estimated for the successive plans steadily decreased. The first looked for $12,911,000, or $14,266,051 as variously reckoned; the second for $14,143,384, or, deducting the Jersey Central, for $8,223,177; the third for $7,064,830; the fourth for $6,971,687; and the sixth for $6,583,055. Thus each plan took over what was most satisfactory in its predecessor; and there was on the one hand a steady decrease in the fixed charges proposed, and on the other a continuous effort to discover some plan which might be satisfactory to all concerned.
That the compromise plan last mentioned succeeded was in part due to the feeling of all contending parties that concessions must be made; it was due also to endorsement by the leaders of the more important interests; and, finally, to an appreciation that the plan was after all a good one, reducing largely the fixed charges which the company would have to pay, while depriving no one of a return which, under the circumstances, he could fairly expect to receive. Mr. Corbin proved willing to undertake the new responsibilities put upon him. He was therefore appointed receiver in October, and elected president in the January following.
Nevertheless, it would be a mistake to suppose that the plan was unanimously accepted from the start. The Lockwood Committee of general mortgage bondholders were prompt in their disapproval, pronouncing it “unjust, uncertain, and indefinite”; saying that reorganization under it would be unduly expensive, and that it was more objectionable than the plans which had preceded it.[229] Equally decided was a small group of capitalists which held a majority of the first series 5s outstanding, the members of which were said to have agreed to hold their bonds and to abide the result.[230] The original time limit for deposits expired on March 1, 1887; it was then extended to March 15, and again to March 31, and deposits of $110,409,464 out of a total of $117,972,859 were secured. By October certain other bondholders had been induced to come in, and the trustees declared the plan operative. Holders of $3,348,000 of first series 5s stayed out, and forced an arrangement by which they were practically paid off in cash.[231] Arrangements were made with some of the subsidiary Reading lines, but the lease of the Central of New Jersey was not renewed. Only odds and ends now remained to be cleared up, and all through the rest of the year the managers were busy paying off receivers’ certificates, floating debt, overdue interest, etc. On January 1, 1888, without formalities, the Reading passed out of receivers’ hands and into the control of the stockholders.
CHAPTER IV
PHILADELPHIA & READING
Difficulties of the Coal & Iron Company—McLeod’s policy of extension—Collapse of this policy—Failure of company—Summary of subsequent history.
With the year 1888 a new period in the history of the Reading began. The long struggle to bring the company back to solvency was fairly over, and for the first time in seven years the road saw before it a chance for genuine prosperity. Unlike the reorganization of 1880–3, that of 1884–7 succeeded in accomplishing the greater part of the saving expected of it. According to the plan, interest charges were to be reduced to $4,233,055;—in 1888 they were $4,516,433, and in 1889 $4,058,139; rentals were not to exceed $2,350,000;—in 1888 they were $2,882,582, and in 1889 $2,842,319. Other payments, it is true, the necessity for which was passed over by the advocates of the plan, raised the total which the road was obliged to meet, but did not prevent a comfortable balance of over $2,000,000 for the Railroad Company in 1888, and one of $1,444,000 for both Railroad and Coal Companies combined. During the next few years large sums were spent in improving the permanent way. By January, 1889, almost the entire line between New York and Philadelphia had been relaid with 85 and 90 pound rails; grades had been smoothed, bridges strengthened, and culverts strengthened or rebuilt.
Less satisfactory than the results for the Railroad Company, however, were those for the Coal & Iron Company. In this case profits of $654,211 for 1887 turned into a loss of $806,222 for 1888, and in the following year a weak demand for coal, combined with a high cost of mining, increased the loss to $974,373. President Corbin felt called upon to explain that prior to 1886 the deficits of the Coal Company had been habitually met by inflating the capital account of the Railroad Company; so that with allowance for this fact the showing of the companies under his management had been relatively good.[232] In November, 1889, a letter of Mr. Gowen’s was issued, hopeful as ever, criticising the management for their refusal or neglect to give authoritative information about actual earnings, but pointing to the large expense for new coal cars, barges, and collieries, and explaining the benefit which these would confer.[233]