In re Associated Gas & Electric Co.

• Decision Date: 25 August 1944
• Citation: 61 F. Supp. 11
• Parties: In re ASSOCIATED GAS & ELECTRIC CO. In re ASSOCIATED GAS & ELECTRIC CORPORATION.
• Court: U.S. District Court — Southern District of New York

61 F. Supp. 11

In re ASSOCIATED GAS & ELECTRIC CO.

In re ASSOCIATED GAS & ELECTRIC CORPORATION.

District Court S.D. New York.

August 25, 1944.

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Lewis M. Dabney, Jr., of New York City, special counsel for Trustee of Associated Gas & Electric Co.

Allen E. Throop, of New York City (O. John Rogge, William W. Golub, and Carlos L. Israels, all of New York City, of counsel), for Trustees of Associated Gas & Electric Corporation.

Morton E. Yohalem, of Philadelphia, Pa., for Securities and Exchange Commission.

Jack Lewis Kraus, II, of New York City (Harry B. Kurzrok, of New York City, of counsel), for General Protective Committee.

Scribner & Miller, of New York City (Roscoe Pound, of Cambridge, Mass., and Charles E. Scribner and Frank R. Bruce, both of New York City, of counsel), for Committee of Agecorp 73s.

Ralph Montgomery Arkush, of New York City, for Agecorp 1978 Debentureholders Committee.

Hays, Wolf Schwabacher, Sklar & Epstein, of New York City (Ralph Wolf and Nathaniel Whitehorn, both of New York City, of counsel), for Protective Committee for Holders of Agecorp 8% Eight Year Gold Bonds due March 15, 1940.

Davies, Auerbach, Cornell & Hardy, of New York City (H. C. McCollom, of New York City, of counsel), for Jacobs Committee for CDCs.

Boehm & Fischman, of New York City (Louis Boehm and Bernard D. Fischman, both of New York City, of counsel), for Scrip Holders Protective Committee of Ageco.

Abraham Mitnovetz, of New York City, for Elias Protective Committee for Holders of Associated Gas & Electric Company Convertible Obligations Due 2002.

Nathan D. Shapiro, of Brooklyn, N. Y., for Kelby Protective Committee.

Joseph Nemerov and Leo B. Mittelman, both of New York City, for Baker Committee.

Frederick L. Kane, of New York City, for Pension Trustees.

William Roberts, of New York City for Equitable Life Assurance Society of the United States.

Glass & Lynch, of New York City (Joseph Glass, Leslie Kirsch, and Samuel Bader, all of New York City, of Counsel), for Empire Trust Co., as Indenture Trustee for Agecorp 73s.

Cullen & Dykman, of Brooklyn, N. Y. (Ralph W. Crolly, of Brooklyn, N. Y., of counsel), for Brooklyn Trust Co., successor Trustee for Agecorp 1978 Debentures.

Kelsey, Waldrop & Spalding, of New York City (H. Boardman Spalding, of New York City, of counsel), for Colonial Trust Co., Successor Indenture Trustee of the SFIDs of 1983 and 1986.

Breed, Abbott & Morgan, of New York City, (Lloyd V. Almirall, of New York City, of counsel), for Underwriters Trust Co., Successor Indenture Trustee.

Rathbone, Perry, Kelley & Drye, of New York City (Hersey Egginton, Frank H. Heiss, and Frederick W. Doolittle, all of New York City, of counsel), for Central Hanover Bank & Trust Co., Indenture Trustee.

Humes, Buck, Smith & Stowell, of New York City (Irwin L. Tappen, of New York City, of counsel), for New York Trust Co., Trustee.

Egginton, Groehl & Denner, of New York City (Hersey B. Egginton and Lorimer Denner, both of New York City, of counsel), for Henry A. Stix.

Sparta Fritz, Jr., pro se.

LEIBELL, District Judge.

There are two matters before me for decision, both of which represent long strides towards the goal of these proceedings, the reorganization of Associated Gas and Electric Company (Ageco) and Associated Gas and Electric Corporation (Agecorp). One matter brings up for review the Special Master's report on a proposed compromise of what has become known as the Recap Litigation and of certain claims in the CDC (Convertible Debenture Certificates) proceeding; the other presents for Court approval, pursuant to Chapter X of the Bankruptcy Act, 11 U.S. C.A. § 501 et seq., a joint plan for the reorganization of the Debtors. The distribution of securities provided for in the Plan is in precise accordance with the terms of the Compromise. The Securities and Exchange Commission has approved the Plan as fair, equitable and feasible, subject to certain conditions. Of necessity, therefore, the Commission has also approved the substance of the Compromise. I agree with its conclusions.

In the Recap Litigation the Trustee of Ageco, a committee for the Ageco Fixed Interest Debentures (FIDs) and certain of the FID holders themselves laid claim to certain assets held by Agecorp and to a first lien thereon, or to at least an equal pro rata participation therein with the holders of Agecorp's securities consisting of Agecorp 8s of 40, Agecorp 73s and Agecorp 78s. These assets, in the main were formerly properties of Ageco. The claims were opposed by the Agecorp Trustees and by Committees and indenture trustees for Agecorp security holders.

The Recap Litigation takes its name from a "Plan of Debt Rearrangement and Recapitalization" (commonly referred to as the Recap Plan) which the Hopson management proposed to the security holders of Ageco in May of 1933. The questions presented in the Recap Litigation involve not only the legality of the Recap Plan, Agecorp's title to its principal assets and the respective rights of Ageco security holders and of Agecorp's 73s and 78s in and to those assets, but also the claimed priority of the Agecorp 8% Gold Bonds due 1940 (8s of 40), issued in March 1932.

Under the Recap Plan the holders of Ageco fixed interested debentures (FIDs), then aggregating $265,000,000, were offered three optional exchanges for their holdings:

(a) Under Option 1, Agecorp Convertible Debentures due 1973 could be obtained in half the principal amount, and bearing the same fixed interest rate, as the Ageco debentures exchanged;

(b) Under Option 2, Agecorp Income Debentures due 1978 could be obtained in the same principal amount as the Ageco debentures exchanged but bearing a lower interest rate payable only if earned; or

(c) Under Option 3, Ageco Sinking Fund Income Debentures due 1983 could be obtained in the same principal amount, and with the same interest rate as the Ageco debentures exchanged. Interest on the SFIDs was payable unconditionally only so long as any Ageco debentures were not deposited under the Recap Plan, and so long as interest on the latter was paid or provided for. After all the Ageco debentures were deposited, interest on the SFIDs was payable only out of "available net income" as therein defined.

The Recap Plan provided that no more than $50,000,000 principal amount of Agecorp 73s would be issued under Option 1, and that the option could be closed as soon as $100,000,000 of Ageco Debentures had been deposited thereunder. Option 1 was declared closed January 17, 1934; but holders of the 73s were given the right to convert their 73s into twice their principal amount of 78s, at any time between June 15, 1935 and June 15, 1945.

Option 2 of the Recap Plan was declared closed April 7, 1936 but the plan provided that it could be reopened at any time. On November 1, 1936, Option 3 was modified by substituting the SFIDs due 1986 for the SFIDs due 1983. These securities were substantially identical, except that the SFIDs due 1986 bore a higher rate of interest than the 1983s under certain specified conditions.

There are presently outstanding in the hands of the public about $8,000,000 of Agecorp 8s of 40; $24,000,000 of the Agecorp 73s (issued under Option 1 of the Recap Plan); $134,000,000 of Agecorp 78s (issued under Option 2 of the Recap Plan or in exchange for 73s); $59,000,000 of unexchanged Ageco FIDs; $8,000,000 of Ageco SFIDs (issued under Option 3 of the Recap Plan); and some $140,000,000 in par or stated value of other securities of Ageco.

A compromise of the rival claims of Ageco and Agecorp security holders to the former Ageco properties which are now held by Agecorp, was recommended by the Trustees of both debtor estates. The Special Master, former Judge Frederick E. Crane of the New York Court of Appeals, who was also Special Master in the Recap Litigation, has reported in favor of the Compromise. The Compromise would grant parity to the Ageco FIDs with the Agecorp 73s and 78s, in the assets now held by Agecorp, and would allow in addition a so-called "differential," in favor of the 73s and 78s, for "lost interest" and for an assumed advantageous litigating position. The Master found (Findings of Fact Nos. 3 and 4) that the assets held by Agecorp as of May 1, 1943, did not exceed $125,000,000 in value and that if the existing capitalization and asset positions of Agecorp were recognized none of the security holders of Ageco would be entitled to share in the Agecorp assets. But the Master also found that there were sound reasons to support the Ageco creditors' attack on both Agecorp's capitalization and its asset position and he approved the Compromise. I adopt the report of the Special Master with some slight modifications of several Findings, and I approve the Compromise, upon the express condition that a Plan of Reorganization incorporating the Compromise is accepted by the participating security holders and confirmed by the Courts.

Under the Compromise, the Agecorp 8% Bonds due 1940 (the 8s of 40) are given a priority in the surviving company, and are rated in the Compromise at 102.56 for each old $100.00 bond, together with interest on each old $100.00 bond, at 4% from July 10, 1943 to the effective date of the Plan of Reorganization. The Compromise does not specify how the priority of the 8s of 40 shall be represented in the surviving company. This I believe was a prudent provision and left some leeway for those who were to draft a Plan of Reorganization to provide for the 8s of 40 a priority that would fit into the Plan as a whole. The terms of participation in the assets accorded the holders of 8s of 40 under the Plan of Reorganization provide that the new debentures to be issued to the 8s of 40 shall contain certain conversion rights. This will make them acceptable to the 8s of 40 Committee, who objected to the treatment accorded them under the Compromise proposal. So the Committee of the 8s of 40,...