Conclusions and findings.-It is apparent from the evidence that the plan of adjustment has been formulated looking to a generally prosperous future, but with the full realization on the part of the applicant that there will probably be years or periods of depression as there have been in the past, so that a substantial part of the interest is to be, and should be, placed on a contingent basis. We are of the opinion that it is in the best interests of each class of creditors and the stockholders, as its provisions are aimed at averting probability of financial difficulties in the future, in the event of which the stockholders and holders of unsecured claims would be the most seriously affected. The adjustments provided in the plan are in accord with the priorities of the several classes of claims and the extent to which they will be benefited by a financial adjustment. We are of the opinion that the plan would be improved if the contingent interest were not to be fully cumulative, but any plan containing provisions that would call for less than all the interest payments prescribed by the original terms of the bonds would not be consistent with an adjustment of this character and possibly would not receive sufficient support to make its consummation possible. One of the essential features of the plan is the extension of the bonds so as to prevent the grouping of maturities within a short space of time. The purchase of the collateral-trust bonds by the Finance Corporation, which is pending before division 4 in another proceeding, constitutes a sale of securities in connection with a financial adjustment and as such comes within the scope of exception (2) to our report of May 8, 1944, In re Competitive Bidding in Sale of Securities, 257 I. C. C. 129, see Baltimore & O. R. Reconstruction Financing, 261 I. C. C. 211, and is therefore not subject to the requirement for competitive bidding. No estimate has been made of the cost of effecting the plan, except the cost of the new securities which is estimated at approximately $715,546. After consideration of the application and weighing the evidence in regard thereto as set forth herein, we find : (a) That The Baltimore and Ohio Railroad Company is not in need of financial reorganization of the character provided for under section 77 of the Bankruptcy Act; (b) that the applicant's inability to meet its debts matured and about to mature is reasonably expected to be temporary only; and (c) that such plan of adjustment, after due consideration of the probable prospective earnings of the property in the light of its earnings experience and of such changes as may reasonably be expected (i) is in the public interest and in the best interests of each class of creditors and stockholders; (ii) is feasible, financially advisable, and not likely to be followed by the insolvency of said corporation, or by need of financial reorganization or adjustment; (iii) does not provide for fixed charges (of whatsoever nature including fixed charges on debt, amortization of discount on debt, and rent for leased roads), in an amount in excess of what will be adequately covered by the probable earnings available for the payment thereof; (iv) leaves adequate means for such future financing as may be requisite; (v) is consistent with adequate maintenance of the property; and (vi) is consistent with the proper performance by The Baltimore and Ohio Railroad Company of service to the public as a common carrier, and will not impair its ability to perform that service. We have scrutinized the facts in this proceeding independently of the extent of acceptances of the plan or any lack of opposition thereto, and the foregoing findings are made without regard thereto. We further find that the proposed (1) issue of not exceeding $84,563,276 of collateral-trust 4-percent bonds, due January 1, 1965; $76,922,350 of first-mortgage bonds, series A, 4 percent due July 1, 1975; $67,826,500 of first-mortgage bonds, series B, 5 percent due July 1, 1975; $37,285,500 of Southwestern division first-mortgage bonds, series A, 5 percent, due July 1, 1980; $36,798,000 of Pittsburgh, Lake Erie & West Virginia system refunding-mortgage bonds, series A, 4 percent, due November 1, 1980; $10,028,700 of Toledo-Cincinnati division first-lien and refunding mortgage 4-percent bonds due July 1, 1985, series D, and $122,639,000 of refunding and general mortgage bonds, consisting of $48,989,000 of series G, $29,218,500 of series J, $22,390,000 of series K, and $22,041,500 of series M; and $61,906,000 of 42-percent convertible bonds due February 1, 2010; and (2) conditional issue and pledge of not exceeding $102,388,750 of refunding and general mortgage bonds, consisting of $15,000,000 of series H, $12,500,000 of series J, $74,647,250 of series L, and $241,500 of series M; $22,553,000 of Pittsburgh, Lake Erie & West Virginia system of refunding-mortgage bonds, consisting of $1,583,000 of series A and $20,970,000 of series B; and $14,344,300 of Toledo-Cincinnati division first-lien and refunding-mortgage bonds, consisting of $265,300 of series D, $5,000,000 of series E, and $9,079,000 of series F, by The Baltimore and Ohio Railroad Company, pursuant to a plan of debt adjustment dated September 20, 1944, as modified by, and with the approval of this Commission, as aforesaid (a) are for lawful objects within its corporate purposes and compatible with the public interest, which are necessary and appropriate for and consistent with the proper performance by it of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) are reasonably necessary and appropriate for such purposes. An appropriate order will be entered. MAHAFFIE, Commissioner, dissenting in part: In 1938, applicant applied for authority under section 20a to extend the maturity and to modify the terms of its obligations because it was unable to meet them as they matured. The extensions were for short periods, and modifications of interest requirements did not decrease the ultimate interest burden. The proposal was presented on the theory that the applicant's difficulties were only temporary. Division 4 approved the application, 230 I. C. C. 243. In doing so it stated, at page 266: To make the arrangement effective, however, substantially all security owners affected by it must consent. We are not asked to approve the plan as such. Our authorization will place applicants in position to seek the approval of their security holders. The alternative is clearly reorganization under the bankruptcy statute. In such a proceeding security holders undoubtedly would be called on for much greater immediate sacrifices than this plan contemplates. Approval of the applications by us will make the option available to the parties interested. Thereafter an amendment of the Bankruptcy Act, known as the Chandler Act (11 U. S. C. sec. 205) became law. It provided a procedure by which a carrier in the position of the applicant might make extensions and modifications of its obligations which had been approved by us under section 20a binding on all affected security holders. To do this it was required that the court find, among other things: Sec. 710. (2) (a) That such corporation is not in need of financial reorganization of the character provided for under section 77 of this Act; (b) That such corporation's inability to meet its debts matured or about to mature is reasonably expected to be temporary only; and (ii) is feasible, financially advisable, and not likely to be followed by the insolvency of said corporation, or by need of financial reorganization or adjustment; These findings the District Court for the District of Maryland made. See 29 Fed. Supp. 608. The readjustment thus approved became effective in 1939. Now some 6 years later under similar statutory authority (chapter XV of the Bankruptcy Act) the applicant is proposing another readjustment. It, too, is to be based on the above quoted findings, among others. This time, however, the findings required by the statute must be made by this Commission. We must approve the plan either as presented and with such amendments as we find proper, or disapprove it. We cannot, this time, simply make the findings prescribed by section 20a and leave the responsibility for the other and much more difficult ones to the judges. Therefore it is important that we examine the workings of the former plan, find out what made it fail, and if we approve a new one, attempt to see that former errors are not repeated. As I view it, the first plan failed because of the timidity of its framers. They contented themselves with nibbling at the troubles besetting the property when a drastic operation was required. Probably this temporizing was induced largely by the attitude of the security holders who were unwilling, or perhaps constitutionally unable, to face realities. By this time, however, security holders must realize that interest can be paid and maturities can be met only as earnings warrant; that fixed maturities, and even fixed interest, in the absence of adequate earnings, are a delusion; and that insistence on them, in such circumstances, is more likely to be productive of "headaches" than of cash receipts. The 1938 plan, despite unprecedented earnings, has failed. The operation must now be done over. The reason it failed is the fact that it did not sufficiently postpone maturities. This plan greatly improves on it in that respect. It is intended to provide a 20-year breathing spell instead of 6 or 8. Probably that will suffice. I hope so. But why take the chance? In general, and except for that defect, the new plan is well devised. It spaces maturities and it provides for reduction of the various bond issues by reasonably adequate sinkingfund provisions. In my opinion, it should be modified by extending all issues affected for equal additional periods. I would prefer 20 years. This would allow 40 years instead of 20 years for the sinking funds to work in reduction of principal before the company is again. confronted with a large maturity. (As approved $84,563,276 will mature January 1, 1965.) So modified, I think we would have support for and could properly make the statutory findings. As the plan is approved in the report, I find it impossible to join in making them. APPENDIX A Collateral proposed to be pledged as security for collateral-trust 4-percent bonds, showing market or appraised value of principal items thereof APPENDIX A-Continued Collateral proposed to be pledged as security for collateral-trust 4-percent bonds, showing market or appraised value of principal items thereof-Continued 1 Closing price. No sales-closing bid price. 2,104 shares. 5,936 shares. 50 shares... $940,102. 10,000 shares. 2,083 shares.. Market value of securities owned by issues of this stock applied on proportionate basis. Stock is held subject to right of refusal to purchase at price indicated. Dividend capitalized at 6 percent. •Appraised value of underlying property. 100 940, 102 162, 270, 870 261 I. C. C. |