Word: railroads
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Dates: during 1940-1949
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...important railroad decisions last week the Supreme Court in effect laid down a basic principle: It is more important for bankrupt roads to drastically revise their capital structures and get in tiptop working condition than it is to protect their junior bondholders and stockholders...
...decisions came in the cases of Western Pacific Railroad and the Chicago, Milwaukee, St. Paul & Pacific. In both instances the Court approved thoroughgoing reorganizations, ignored present war-boomed earnings as the basis for capitalization, and upheld the hard hand of the Interstate Commerce Commission...
...Profits and the Losses. The court decisions raised hob. Hardest hit were junior bondholders and stockholders in receivership railroads. They have watched railroad profits soar skyward for months, had become convinced they could get the ICC-sponsored reorganization plans changed enough to make their holdings highly profitable. When the Court said no, receivership rail stocks on the New York Stock Exchange nose-dived 50 to 80%. Prices for junior bonds jumped the tracks. Western Pacific preferred stock flopped from $3 to 70?; Rock Island 7% preferred from...
Pattern for the Future. The Court's decision was of lasting significance. Despite the boom in railroad profits, some 30 major U.S. railroads are still in the courts. Together these "broke" railroads operate nearly 30% of U.S, railroad mileage. One has been in receivership for 38 years. With a clear precedent and no higher court of appeal, these railroads can now stop going to law and knuckle down to the job of reorganizing. But it will be a tough ride: before ICC and the courts get through, their combined capitalizations will be cut from the pre-depression...
...this severe cut may be a blessing in disguise. The decisions may mean the difference between profits and bankruptcy for many a railroad after the war. With capitalizations cut to the ballast, fixed charges down to a minimum and strong-boxes bulging with leftover wartime cash, all well-managed roads now should not merely be alive but should also be in first-class shape to fight truckers, shippers and airline operators for postwar business. For the whole U.S. economy this was good news...