“The sums for covering these expenses should not be raised by temporary loans, as this would not relieve the company of its embarrassments nor place its finances upon a sound footing. It cannot be raised by an additional mortgage, on account of the provisions of the mortgage securing the income bonds. It must and can be raised from a funding of coupons which shall leave the earnings of the company sufficiently free to meet the demands upon them. The committee therefore recommends:
(1) “That the holders of the consolidated 5 per cent bonds be asked to fund four coupons, being those maturing January and July 1, 1885, and January and July 1, 1886, by depositing said four coupons with the Central Trust Company of New York, as trustee, and receiving instead the company’s funded coupon bond dated July 1, 1885, and bearing 6 per cent interest per annum from that date, ... which bond shall run ten years from its date and be redeemable at the pleasure of the company at par and accrued interest after three years, on three months’ notice; such funded coupon bond to be secured by the coupons so deposited, the lien of which will be in all respects preserved.
“The total extensions under this clause would be $1,467,400.
(2) “That the holders of the $2,000,000 of the Cincinnati & Georgia Division first mortgage 6 per cent bonds be asked to fund four coupons, ... being those maturing March and September 1, 1885, and March and September 1, 1886, ... and accepting in lieu thereof a funded coupon bond ... dated September 1, 1885.
“The total amount extended under this clause would be $240,000.
(3) “That the holders of the debentures be asked to extend for ten years such of the debentures as fall due during the years 1885 and 1886, and to accept similar debentures running from five to ten years, for the interest....
“The total amount extended under this clause would be $373,200.
(4) “That an arrangement be made with the holders of the car trust certificates of the company, series A, for an extension for ten years of all the payments of principal falling due in 1885 and 1886, being $100,000 in each year.
“The total amount extended under this clause would be $200,000.”[305]
The committee had an apology to offer for the state in which the company was placed. “The actual cost of the 190 miles of the new roads constructed by the company has largely exceeded,” said they, “the estimated cost. The physical condition of the roads purchased by the company necessitated the expenditure of large sums in the improvement of roadway and track; the construction and reconstruction of bridge masonry and bridge superstructure. The facilities for the conduct of the company’s business were entirely inadequate to the requirements of its increasing traffic and had to be enlarged. Unfortunately the company did not fully provide for these expenditures, and the shrinkage of the value of its securities greatly aggravated the evil.” This much was very true. In its criticism of existing facilities the committee was on sure ground. In its suggestions for relief it was less well advised. It seems to have felt that the East Tennessee’s difficulties were due to a temporary inability to raise cash for the improvement of its roadbed and equipment, and that the suspension of certain charges for a few years would allow the expenditure of liberal sums from income, ensure the improvement of the road, and bring about a condition of permanent prosperity. The truth was that the East Tennessee was in too bad a shape to be reëstablished by such means. The heavily burdened and physically defective lines which made up the system were past being restored from income even with the aid of a funding of a few years’ coupons. They required a definitive surrender of portions of the claims against them, extensive new charges to capital account, and a correspondingly complete reconstruction of their whole operating plant.[306] The practical service which the committee rendered was not in suggesting an adequate remedy for existing troubles, but in making plain how serious these troubles were. So imminent, in fact, did they show collapse to be, that the management determined to forestall hostile action by themselves asking for the appointment of a receiver; and on January 7 the Circuit Court appointed Henry Fink to that position.[307] The committee’s funding scheme fell of its own weight. The decrease in the earnings of the company, a truer appreciation of its condition, and, it may be surmised, the influence of New York banking houses, forced it to make room for a thorough plan of financial reconstruction.