| Principal | Interest | ||
|---|---|---|---|
| Bonds, guarantee fund notes | $160,786,000 | $9,203,620.00 | |
| Contingent issue of additional bonds | 775,000 | 38,750.00 | |
| Car trusts | 1,445,660 | 86,739.60 | |
| $163,006,660 | $9,329,109.60 | ||
| Less interest on bonds and guarantee fund notes owned by the Company | 253,340.00 | ||
| $9,075,769.60 | |||
| Sinking Fund | 359,000.00 | ||
| Taxes | 1,221,000.00 | ||
| Rentals | 502,000.00 | ||
| $11,157,769.60 |
Of the bonds outstanding $56,498,000 were direct loans upon the Atchison’s main lines, bearing anywhere from 4½ to 7 per cent, and $104,288,000 were bonds upon some of the thirty-two subsidiary corporations for whose obligations the Atchison was responsible.
The dealing of the Libby Committee with this situation was intelligent and comprehensive. It proposed an increase and simplification of securities, a decrease in fixed charges, and a cancellation of the floating debt. In place of the forty-one classes of bonds outstanding it suggested that two grand issues be put forth, one of 4 per cent general mortgage bonds to the amount of $150,000,000, and one of 5 per cent income bonds to a total of $80,000,000. From these issues $13,750,000 should be used to provide for cash requirements,[420] and the remainder should be employed in direct retirement of old obligations. The exchange of some $216,000,000 of new bonds for $163,000,000 of old was to mean an increase in securities outstanding, but since interest on only part of the new bonds was to be obligatory fixed charges were to be less than they had been before. The managers figured on what the property could earn, good times or bad, and capitalized this sum into 4 per cent general mortgage bonds. They then calculated the difference between this and the former return to bondholders, and capitalized the difference into income bonds.[421] Each individual bondholder, therefore, was offered a chance to receive the same return which he had previously enjoyed, although his right to demand an annual payment was limited to an amount which the road could earn.
A few points deserve to be specially noticed. The reduction in interest was sufficient to have transformed the deficit for the whole Atchison system for 1888 into a respectable surplus, providing that no dividends had been paid; but this reduction was dependent on the retention of the income bonds as optional obligations. There was no cash assessment. Had the reorganization taken place in a time of general depression, the sale of securities for cash would probably have been impossible, but the days of depression had not yet arrived. The stockholder suffered in the introduction of the principal of some $67,000,000 additional indebtedness between him and his property, although he was not called upon directly; but it should not be forgotten that for a long while the Atchison stockholders had received very liberal dividends, both in stock and in cash, and could not well complain of the moderate loss now necessary. There was no voting trust, although one was proposed, and the bonds were not even temporarily given voting power. The situation seems to have been that the securityholders thought it more to their advantage to reduce voluntarily the rate of interest than to force a foreclosure sale and take their chances; for the directors, in submitting the plan, said that they felt it necessary “to state in the strongest terms that the non-success of this proposal will inevitably result in foreclosure, with all its attendant misfortunes.”[422]
By the end of November, although the plan had not been promulgated until well into October, more than one-half of the outstanding bonds had assented, and the directors were enabled to announce success. Certain changes in the management had already taken place. President Strong had resigned in September, and had been succeeded by Mr. Allen Manville, general manager of the St. Paul, Minneapolis & Manitoba Railway.[423] Mr. Reinhart was credited with a large part in the construction of the new plan of 1889, and his later promotion may have been connected therewith.
After the reorganization Atchison resumed its policy of expansion, its new directors being apparently as “bold and enterprising” as the old. In 1890 it took in the St. Louis & San Francisco, a road running from St. Louis west and southwest through Missouri, Kansas, Arkansas, and Indian Territory, connecting at Paris, Texas, with the Gulf, Colorado & Santa Fe, and through half-ownership of the Atlantic & Pacific connecting Albuquerque in New Mexico with Barstow in Southern California. The total length of the Frisco system, exclusive of jointly owned roads, was 1329 miles, and this constituted the largest single acquisition that the Atchison had ever made. The terms of the purchase were highly favorable to the Frisco shareholders, but the benefits to the Atchison were less than was expected. Although the consolidation removed certain difficulties experienced from the joint ownership of the Atlantic & Pacific, and although the united roads were in a better position to compete for transcontinental and Gulf traffic than either of them had been before, the Atchison directors were forced to announce in 1891 that, “with every opportunity given it to work with advantage, the property (Frisco) has failed to demonstrate its ability to carry itself financially and to liquidate its debts; nor could it hope to obtain such results without the provision of New Capital.... This is due largely to the absence of complete and proper facilities and machinery with which to conduct operations in the nature of Round Houses, Machine Shops, Stations and other buildings, improved Bridges and Equipment.”[424] A bond issue was needed, and was in fact put forth,—the Atchison taking a goodly share.
Less important than this was the purchase, in 1890, of the Colorado Midland, a road 346 miles long in Colorado, valued chiefly for its ore traffic. In August, 1890, the Mexican Government resumed payment of the Sonora subsidy, on which nothing had been paid for eight years.[425] It does not seem as if at any time after 1889 the Atchison enjoyed unalloyed prosperity. The year 1890 showed an increase in net earnings of 48 per cent according to the figures given, and the directors were unhappy until they had increased the fixed charges to match, but the year 1891 recorded a falling off, and 1892 showed a comparatively slight gain over the figures of 1891. There was obviously nothing in the reported figures to cause alarm, but there was nothing which justified the payment of more than 2¾ per cent any year on the income bonds, or of any dividends on the stock.
Toward the end of 1891 the guarantee fund notes fell due. They had been issued, it will be remembered, to protect the property in 1888, and were secured by an equal amount of general mortgage 4s; but now the directors, disliking to put these 4s on the market at 83¼, decided to extend the notes for two years at par with a cash commission of one per cent.[426]
Extension of the guarantee fund notes did not increase the fixed obligations, it merely postponed a reduction; but the conversion of the income bonds of 1889 acted as a positive increase. There were $80,000,000 of these incomes, and it was in the optional character of payments upon them that the saving of fixed charges by the reorganization of 1889 had consisted. They had been issued instead of preferred stock probably because more acceptable to the bondholders; but it was early found that their use involved difficulties which had not been sufficiently regarded. By the conditions of their indenture no bonds could be inserted between them and the general mortgage 4s; they held a second lien for all time. But similarly it was difficult to put bonds after them. Their lien was on income,—interest was payable only when earned; any regular mortgage would of necessity have taken precedence. The hindrance to new issues was real and serious, and although some check on an aggressive management was salutary, yet the system required additions and improvements from time to time which could not be supplied from current income. Under these circumstances the Atchison directors decided within three years to sacrifice the reduction in fixed charges secured in 1889 in order to obtain new capital with greater ease. “It is the opinion of the Management,” said the annual report for 1892, “that the time has now arrived when all the obligations of the Company can be returned to a Fixed Basis, sufficient funds provided to take care of all Improvements ... required for at least four years, and at the same time the junior Bonds and Capital Stock be restored to a more permanent market value with assured returns on the first, and probable balances for the latter.”[427] “The Atchison plan of conversion,” said Mr. Reinhart, “... is the completion of the reorganization plan put in effect October 18, 1889, and returns the obligations of the company ... to a fixed and stable basis....”[428]
The plan so cordially referred to provided for the issue of a new, second mortgage, 4 per cent bond, and the exchange of this security for the outstanding income bonds. The second mortgage was to be issued in two classes: