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* * * The Commission has been criticized for not modifying its plans because of changes in conditions since it approved the plans. Under the provisions of section 77 the function of the Commission so far as the provisions of a plan are concerned are at an end once it certifies the plan to the court unless the court returns the plan to the Commission for further consideration and modification. If it is thought desirable that further consideration be given to the provisions of plans because of changed conditions since the plans were certified to the court, arrangement for such further consideration could easily be made by a simple amendment to section 77 requiring that the court return the plans to the Commission for further consideration in the light of changed conditions.

* * * In lieu of section 2 (of H. R. 3237) an amendment could be made to section 77 by adding at the end of subsection (f) thereof a paragraph somewhat as follows:

"Upon petition of any party to the proceeding and upon request of the Commission at any time before the property dealt with by the plan is transferred and conveyed to the debtor or to the other corporation or corporations provided for by the plan, the judge shall return the plan to the Commission for such further modification as may be required because of changes, facts and developments since 1940. The Commission, upon further hearing, if deemed necessary, and upon consideration of all such changes, facts and developments since 1940, including, without limitation, for such period total railway operating revenues, operating expenses and other charges, net revenues, the full effect of amortization deductions on earnings of past and future years, improvements to the property, the effect of the released collateral through past or future payment of loans, cash and net current assets, retirements and purchases of debt, including retirements and purchases at a discount that have been made or that can reasonably be made, adjustment and reduction of interest rates on outstanding debt that may be made, shall, in a supplemental report and order modify, or refuse to modify, any plan which it has approved, stating the reasons for such modification or for its refusal to modify the plan. The Commissioner, if it modifies the plan, shall certify the modified plan to the court together with a transcript of the proceeding before it and a copy of its report and order approving the modified plan. Thereafter proceedings upon the plan shall be governed by the provisions of subsection (e) and of this subsection. If the Commission refused to modify the plan, it shall transmit to the court a copy of its report and order, together with a transcript of the proceeding before it. Thereafter, if the judge shall find that the refusal of the Commission to modify the plan is based on sufficient findings and is supported by the record, the proceeding upon the plan shall continue as if the plan had not been returned to the Commission; otherwise the Judge shall return the plan to the Commission for further consideration and modification in accordance with his opinion and thereafter further proceedings upon the plan shall be as provided in subsection (e) and in this section."

I want to call your particular attention to that part which states, "The Commission, upon further hearing, if deemed necessary, and upon consideration of all such changes, facts, and developments since 1940, including, without limitation, for such period total railway operating revenues, operating expenses, and other charges, net earnings, the full effect of amortization deductions on earnings of past and future years, improvements" and so on; you see what a different complexion that put on the earnings from 1940.

Senator REED. Do you know where that language came from?
Mr. REUSS. No, sir.

Senator REED. I wrote that and put it into the bill last year.
Mr. REUSS. I am glad to hear that.

improvements to the property, the effect of the released collateral through past or future payment of loans, cash and net current assets, retirements and purchases of debt, including retirements and purchases at a discount that have been made or that can reasonably be made.

That is my point.

Senator REED. That was my pet section in the bill we passed last year. The Interstate Commerce Commission was asked by the President to make a memorandum for him in connection with the

of the Wisconsin Central Railway Co., Superior and Duluth division, and terminal first-mortgage bonds. This memorandum is submitted by me on behalf of Howard H. Hubbard, William S. Spatcher, and George P. Hoke, the protective committee.

The Superior and Duluth committee was organized under an agreement dated October 17, 1940, and is acting pursuant to a deposit agreement, dated as of December 19, 1932, as amended. The committee has on deposit $2,010,000 principal amount of Superior and Duluth bonds out of a total of $7,500,000 principal amount of such bonds outstanding.

The Superior & Duluth committee believes that the Wisconsin Central Railway Co. reorganization affords a prime example of the wisdom and necessity of legislation such as S. 248, amended as proposed by Senators Reed and Myers. Accordingly, said committee unequivocally endorses S. 249 provided it is amended as proposed by Senators Reed and Myers and urges its enactment if so amended.

In that connection, I want to emphasize the fact that whereas most of the proponents of this bill have been stockholders and junior creditors, the stockholders in this particular case come in as first lien mortgage group, who see that our rights are being unduly forfeited and eliminated through the exercise of section 77.

The main line of the Wisconsin Central Railway Co., herein usually called Wisconsin Central, runs from Minneapolis and St. Paul, sometimes called the Twin Cities, to Chicago. A subsidiary main line runs southeasterly from Superior and Duluth, sometimes called ⚫ the Twin Ports, and connects with the principal main line at Owen, Wis. Ignoring a small amount of equipment obligations and $246,000 of Marshfield bonds, the outstanding debt of the Wisconsin Central consists of $20,197,000 principal amount of first general mortgage bonds, $7,500,000 principal amount of Superior & Duluth bonds, and $15,816,000 principal amount of first and refunding mortgage bonds. The first general bonds are secured by a first lien on the principal main line between the Twin Cities and Chicago; the Superior & Duluth bonds are secured by a first lien on the subsidiary main line between the Twin Ports and Owen; and the first and refunding bonds are secured by a second lien on the entire line of railroad.

The Wisconsin Central is operated by the Minneapolis, St. Paul & Sault-Ste Marie Railway Co., commonly known as the Soo Line, under an operating agreement under which the Soo has complete control of the Wisconsin Central operations. Since the Soo is controlled by the Canadian Pacific Railway, Wisconsin Central is really an integral part of the Canadian Pacific system.

The Wisconsin Central went into receivership in December 1932. After 12 years in receivership, with no substantial progress toward a reorganization having been made, in September 1944, it filed a petition for reorganization under section 77 of the Bankruptcy Act.

After the Wisconsin Central filed its petition for reorganization under section 77, two proposed plans of reorganization were filed. One plan was filed by the protective committee, herein called first general committee, for the holders of the first general mortgage bonds, which committee consists of representatives of large institutional groups, chiefly insurance companies. The other plan, herein called the joint plan, was filed jointly by the Superior & Duluth committee

Mr. REUSS. Well, we have seen the New Haven com from 0 to 5 or 6 dollars a share. That is a terrific percen We have seen old MOP preferred go from nothing to $1 And the New Haven from 0 to $15 or $16 a share, and then ba Senator REED. Take the Missouri-Kansas & Texas, whi in bankruptcy.

Mr. REUSS. That is right, sir.

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Senator REED. I happen to live in Parsons, Kans. In my opinion, that railroad was kept together through 1939 and 1940 with baling wire and shoestrings.

Mr. REUSS. And Matt Sloan.

Senator REED. And Matt Sloan. I know Matt Sloan very well. Mr. REUSS. Yes.

Senator REED. With these great earnings, when they came along, he rebuilt the railroad.

Mr. REUSS. That is right.

Senator REED. And reduced the fixed interest indebtedness about 40 percent.

Mr. REUSS. That is right.

Senator REED. I can remember when nobody bought Katy common stock except by the pound or the bushel, or some unit of measurement like that.

One time in recent years, Katy preferred got up to forty-odd. I have forgotten what it was.

I never owned any and never expect

to own any. The common went from a fraction of a dollar up to, I think, around $15.

Mr. REUSS. That is right.

Senator REED. There was an element of speculation there.

Mr. REUSS. Yes.

Senator REED. Similar to the speculation that has been described elsewhere.

Thank you very much, Mr. Reuss.

Mr. REUSS. Yes, sir.

Senator REED. We will next hear from Mr. Minton. I am sorry, sir, that Senator McCarthy is not here.

STATEMENT OF A. ALBERT MINTON, COUNSEL, PROTECTIVE COMMITTEE, WISCONSIN CENTRAL FIRST MORtgage BonDS, NEW YORK, N. Y.

Mr. MINTON. I will try to see Senator McCarthy, Senator Reed. And I will try to see him in the future, if that will be any help. Senator REED.. We need all the help we can get.

Mr. MINTON. We are trying to give you all we can.

Senator REED. The interests opposed to this legislation are a good deal more powerful and concentrated than the folks that are for it. Mr. MINTON. So I seem to gather. We are very much interested in getting this legislation passed if possible.

Senator REED. Where is your home, Mr. Minton?
Mr. MINTON. My home?

Senator REED. Yes.

Mr. MINTON. New York City, Senator Reed.

Senator REED. You do not live in New Jersey?

Mr. MINTON. No, I do not. Senator Reed, my name is Minton, and I am one of counsel for the protective committee for the holders

of the Wisconsin Central Railway Co., Superior and Duluth division, and terminal first-mortgage bonds. This memorandum is submitted by me on behalf of Howard H. Hubbard, William S. Spatcher, and George P. Hoke, the protective committee.

The Superior and Duluth committee was organized under an agreement dated October 17, 1940, and is acting pursuant to a deposit agreement, dated as of December 19, 1932, as amended. The committee has on deposit $2,010,000 principal amount of Superior and Duluth bonds out of a total of $7,500,000 principal amount of such bonds outstanding.

The Superior & Duluth committee believes that the Wisconsin Central Railway Co. reorganization affords a prime example of the wisdom and necessity of legislation such as S. 248, amended as proposed by Senators Reed and Myers. Accordingly, said committee unequivocally endorses S. 249 provided it is amended as proposed by Senators Reed and Myers and urges its enactment if so amended.

In that connection, I want to emphasize the fact that whereas most of the proponents of this bill have been stockholders and junior creditors, the stockholders in this particular case come in as first lien mortgage group, who see that our rights are being unduly forfeited. and eliminated through the exercise of section 77.

The main line of the Wisconsin Central Railway Co., herein usually called Wisconsin Central, runs from Minneapolis and St. Paul, sometimes called the Twin Cities, to Chicago. A subsidiary main line runs southeasterly from Superior and Duluth, sometimes called the Twin Ports, and connects with the principal main line at Owen, Wis. Ignoring a small amount of equipment obligations and $246,000 of Marshfield bonds, the outstanding debt of the Wisconsin Central consists of $20,197,000 principal amount of first general mortgage bonds, $7,500,000 principal amount of Superior & Duluth bonds, and $15,816,000 principal amount of first and refunding mortgage bonds. The first general bonds are secured by a first lien on the principal main line between the Twin Cities and Chicago; the Superior & Duluth bonds are secured by a first lien on the subsidiary main line between the Twin Ports and Owen; and the first and refunding bonds are secured by a second lien on the entire line of railroad.

The Wisconsin Central is operated by the Minneapolis, St. Paul & Sault-Ste Marie Railway Co., commonly known as the Soo Line, under an operating agreement under which the Soo has complete control of the Wisconsin Central operations. Since the Soo is controlled by the Canadian Pacific Railway, Wisconsin Central is really an integral part of the Canadian Pacific system.

The Wisconsin Central went into receivership in December 1932. After 12 years in receivership, with no substantial progress toward a reorganization having been made, in September 1944, it filed a petition for reorganization under section 77 of the Bankruptcy Act.

After the Wisconsin Central filed its petition for reorganization under section 77, two proposed plans of reorganization were filed. One plan was filed by the protective committee, herein called first general committee, for the holders of the first general mortgage bonds, which committee consists of representatives of large institutional groups, chiefly insurance companies. The other plan, herein called the joint plan, was filed jointly by the Superior & Duluth committee.

RAILROAD REORGANIZATION

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and the protective committee for the holders of first and bonds. The first general plan was a typical "institution. plan, which contemplated a sharply limited capitalization, the new bonds and cash going to the first general bondhol only common stock to the other bondholders. The joint pi templated a substantially larger capitalization, with a substantial portion of the new senior securities being allocated to the Superior & Duluth bondholders and the first and refunding bondholders.

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In August 1946, Examiners Kirby and Wilkinson of the Interstate Commerce Commission filed a proposed report which adopted almost verbatim the first general plan.

In other words, proposed by two examiners of the Commission, and it is pending being heard by the Commission. They have not ruled on the proposed report as yet.

Under this plan, the debtor's total capitalization was reduced from approximately $72,000,000, or approximately $90,000,000 if accrued interest be added, to $47,175,664, with the result that the preferred and common-stock holders are completely eliminated from the reorganization, as well as a large portion of the claims of the Superior & Duluth bondholders and the first and refunding bondholders.

Second: All the distributable cash and bonds are allocated to the first general bondholders, whose claims are satisfied in full, with nothing but common stock being allocated to the Superior & Duluth bondholders and the first and refunding bondholders, and then only for a portion of their claims.

Third: All the properties on which the Superior & Duluth bondholders have a first mortgage lien are transferred to a new mortgage for the sole benefit of the first general bondholders, with the Superior & Duluth bondholders being accorded no interest whatever in the new mortgage.

Fourth: Substantially better treatment is accorded to the second lien first and refunding bonds than to the first lien Superior & Duluth bonds, apparently without the examiners having made any real effort to determine the relative value of these two classes of bonds.

It will thus be seen that, notwithstanding the vigorous criticism of the harsh and unnecessary "forefeitures" of the rights of creditors/ and stockholders under section 77 plans, as repeatedly set forth in the report of the Senate Committee on Interstate Commerce on the Wheeler-Reed bill, a criticism which was endorsed by the passage of the Wheeler-Reed bill by both the Senate and the House in 1946, the examiners in the Wisconsin Central case have produced a plan which contains the chief vices and defects so forcibly condemned by the Senate committee.

Next, I will cover the undue and unnecessary forfeiture of the rights of creditors and stockholders.

There is, we submit, no possible justification for reducing the total capitalization of Wisconsin Central from $72,000,000, about $90,000,000 if accrued interest be added, to a mere $47,000,000. All the elements or indicia of value indicate that the properties of the Wisconsin Central have a value greatly in excess of $47,000,000. Their book value is approximately $89,000,000. So far as physical values are concerned, the record before the Interstate Commerce Commission shows that, as of December 31, 1943, the original cost of Wis

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