Realistic Relation

Arthur Curtiss James owns a famous beard and more railroad securities than any man in the U. S. Last week this second possession was substantially cut when the Interstate Commerce Commission approved a reorganization plan for Western Pacific R. R. Co. writing off all its capital stock; at last reports Mr. James through various holding companies owned 40% of the stock, an investment with a par value of about $30,000,000.

Long Mr. James's pet road (he also has large holdings of Great Northern, Southern Pacific and Chicago, Burlington & Quincy), Western Pacific has 1,207 miles of road, a main line running from Oakland Mole, Calif. to Salt Lake City and from Keddie to Bieber, Calif., where it connects with the Great Northern And Western Pacific's holding company, Western Pacific R. R. Corp., has a half interest in Denver & Rio Grande Western. It thus forms a link in a direct route from St. Louis to the Pacific.

Not since 1929 has Western Pacific earned enough to cover its fixed charges ($3,634,000 last year). Since 1936 four reorganization plans have been presented by interested parties, one of them being by Chairman James. None satisfied ICC, which finally intervened with a plan of its own--first time it had ever taken such action with so important a railroad. Western Pacific's capitalization now will be reduced from $150,597,000 to $93,726,517, fixed charges to $511,001. This will be accomplished by wiping out the equity of stockholders and claims of unsecured creditors making them bear most of the loss.

This sort of forthright reorganization is almost unprecedented in U. S. railroad history. Before Depression I railroads went through reorganization much as a snake sheds its skin, with bondholders forced to split the loss with stockholders and with railroads often left in just as bad a fix when the shedding was over. After the Federal Bankruptcy Act was amended in 1933 to give ICC power to supervise or rewrite reorganization plans and to allow roads to continue operating with their debts in a sort of suspended animation (Section 77), there came a complete cessation of reorganizations. For nearly five years, although nearly a third of the nation's trackage was in the courts, no road successfully reorganized.

Last summer, as talk of rewriting Section 77 grew, ICC put on the pressure. Western Pacific was the fourth Class I railroad shoved through the wringer in four months.* Giving a clear indication of its temper, ICC last week declared: "If . . . reorganization is to be successful, the capital structure of the reorganized company must be realistically related to its actual earning power. . . ."

* The other three, all subject to court approval: 1) Spokane International to merge with Coeur d'Alene & Pend d'Orielle; 2) Akron, Canton & Youngstown to merge with Northern Ohio; 3) Great Western (TIME, Aug. 29).

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