In re Central of Georgia Ry. Co.

• Decision Date: 05 May 1943
• Docket Number: No. 4829.,4829.
• Citation: 48 F. Supp. 445
• Parties: In re CENTRAL OF GEORGIA RY. CO.
• Court: U.S. District Court — Southern District of Georgia

48 F. Supp. 445

In re CENTRAL OF GEORGIA RY. CO.

No. 4829.

District Court, S. D. Georgia, Savannah Division.

December 23, 1942.

Order Affirmed May 5, 1943.

Anderson, Cann & Dunn, of Savannah, Ga., and Larkin, Rathbone & Perry, of New York City, for Central Hanover Bank & Trust Co.

Hitch, Morris & Harrison, of Savannah, Ga., and Debevoise, Stevenson, Plimpton & Page, of New York City, for Liberty Nat. Bank & Trust Co., of Savannah, Ga.

Adams, Douglas & Brennan, of Savannah, Ga., for Citizens & Southern Nat. Bank.

Root, Clark, Buckner & Ballantine, of New York City, for New York Life Ins. Co.

Alexander & Green and Edward W. Bourne, all of New York City, and Henry B. Brennan, of Savannah, Ga., for Bankers Trust Co. of New York.

Carter, Ledyard & Milburn, of New York City, and Oliver, Oliver & Davis, of Savannah, Ga., for First Mortgage Income Bonds.

W. W. Beachboard, of Newark, N. J., for Prudential Life Ins. Co.

Lee, Congdon & Fulcher, of Augusta, Ga., for Refunding General Mortgage.

Wallace Miller, General Counsel, of Macon, Ga., and Anton P. Wright, President, of Savannah, Ga., for the Southwestern R. R.

Charlton Ogburn, of New York City and Emmett McCaffery, of Washington, D. C., for Reconstruction Finance Corporation.

T. M. Cunningham and A. R. Lawton, Jr., both of Savannah, Ga., Edwin S. S. Sunderland and Chester F. Leonard, both of New York City, and George O'Donnell, of Savannah, Ga., for trustee and debtor.

LOVETT, Judge.

As a result of the hearing held in this case on December 1, 1942, at which many aspects of an early reorganization of this railroad were discussed by the parties at interest, two questions remain for determination at this time.

The first is whether and what interest shall be paid now on certain bonds of the debtor, including one underlying issue which the debtor has not assumed, from earnings of the railroad in reorganization, and, secondly, what direction, if any, shall be given by the court to the trustee of the debtor at this time with respect to the refinancing of the Collateral Trust Bonds of the Central Railroad & Banking Company now matured, also not assumed by the debtor. The equity of the collateral pledged to secure these Collateral Trust bonds is owned by the debtor. It is urged by the mortgage trustee of the Collateral Trust Bonds that the debtor's trustee should be instructed to pay the principal and interest owing on them, or the injunction heretofore issued against the exercise by the mortgage trustee and the bondholders of their rights and remedies should be dissolved.

These questions will be considered in the inverse order of their statement.

These matters came on for a hearing in this way. The Central Hanover Bank & Trust Company of New York as trustee under the Collateral Trust Mortgage of the Central Railroad & Banking Company of Georgia filed its petition in these proceedings on August 31, 1942, and thereby became a party. The prayer of the petition was, in effect, that the court instruct the debtor's trustee to make his recommendation for financing payment of the bonds. On this petition the court entered an order setting the matter for hearing on October 21, 1942 (later adjourned to December 1), and directing that all parties at interest be notified and be entitled to participate and be heard at such hearing. The trustee of the debtor was directed to present data sufficient to inform the court and the parties as to the most practicable method of dealing with said Collateral Trust Bonds consistent with the rights of the holders thereof and in the best interest of the debtor's estate and of its reorganization.

Subsequently the Liberty National Bank & Trust Company of Savannah, Georgia, as trustee of the First Mortgage of the debtor securing its "First Mortgage Bonds", and Central Hanover Bank & Trust Company of New York, as trustee of the First Mortgage of the Chattanooga, Rome & Southern Railroad Company, securing the underlying bonds mentioned, have filed their petitions asking that all of the past due interest coupons on their bonds respectively be paid at this time. At the hearing the Bankers Trust Company of New York, as trustee of the Consolidated Mortgage securing the "Consolidated Bonds" of the debtor, appeared and asked that interest should be paid on the bonds secured by its mortgage.

The trustee of the debtor on the hearing submitted and filed an elaborate statement accompanied by exhibits setting forth the financial condition of the trust estate, plans for the rehabilitation of the properties of the debtor, and other relevant matters touching the reorganization of the railroad. He has made certain recommendations to the court, in the light of the cash resources of the estate and the other matters set forth in his statement, with respect to the amount of interest which he considers can be safely paid at this time, the total of which is $1,013,133.00. As the result of negotiations between him and the trustees of the bond mortgages last mentioned he has modified these figures upward until now he indicates that $1,150,633.00 in his opinion may be presently paid. These recommendations seem satisfactory to the trustees representing the First Mortgage and Consolidated Mortgage bonds, but are unsatisfactory to the trustee of the Chattanooga, Rome & Southern Mortgage bonds and to the trustee of the Collateral Trust Mortgage bonds. As trustee of the Collateral Trust Mortgage the Central Hanover takes the position that no interest should be paid on any bonds (except Chattanooga, Rome & Southern bonds) until provision has been made for the payment in full of the Collateral Trust bonds; and the same bank as trustee of the Chattanooga, Rome & Southern underlying mortgage insists that because of the high earnings of its mortgaged property all of the past due interest on the bonds secured by that mortgage should be paid in full before any interest is paid to any other bondholders.

The trustee of the debtor has also advised the court that it will facilitate the refinancing of the Collateral Trust bonds and the reorganization of the railroad if a committee representing the several bondholding interests is set up to serve in an advisory capacity to him, and that among the matters which he and the committee should promptly consider would be plans for the adjustment through negotiation of the Collateral Trust bonds. He also suggested in his statement that an additional committee of three should be set up to advise with him concerning the leased lines of the debtor, but this suggestion has been withdrawn.

The trustee of the debtor testified as a witness on the hearing, other evidence was taken, and several of the parties have submitted briefs to the court, which have been duly considered.

As indicated on the hearing, I consider it advisable to have the advisory committee suggested by the debtor's trustee named as promptly as possible to the end that all of the many matters that must be considered in a plan of reorganization may be given early attention, and the views of the parties with respect to them obtained.

The mortgage trustee of the Collateral Trust bonds invokes the rule of law announced in Continental Illinois Nat. Bank & Trust Co. v. Chicago, R. I. & P. R. Co., 294 U.S. 648, 675, 679, 55 S.Ct. 595, 79 L.Ed. 1110, that sale of collateral by a pledgee in a case of this kind should be enjoined only if such a sale would so hinder, obstruct and delay the preparation and the consummation of the plan of reorganization as probably to prevent it, and in such event only reasonable delay should be countenanced. Attention is also called to cases in which it is held that the burden of proof is upon the debtor, or those supporting the injunction, to show that its granting or continuance is necessary. See In re Murel Holding Corp., 2 Cir., 75 F.2d 941; Guaranty Trust Co. of New York v. Henwood, 8 Cir., 86 F.2d 347, 354, 108 A. L.R. 1020; In re Prudence Co., Inc., 2 Cir., 90 F.2d 587, 590; In re New York, N. H. & H. R. Co., 2 Cir., 102 F.2d 923; Foust v. Munson S.S. Lines, 299 U.S. 77, 57 S.Ct. 90, 81 L.Ed. 49.

The question I must now decide is whether or not maintaining the status quo for a reasonable length of time hereafter is necessary to the formulation and putting into effect of a satisfactory plan of reorganization of the railroad. Some speculation must be indulged in when this question is answered.

Among the collateral pledged to secure the Collateral Trust bonds is substantially all of the capital stock of the Ocean Steamship Company, which stock is owned by the debtor subject to the lien of the Collateral Trust mortgage. For a long period of time the Ocean Steamship Company, whose fleet of boats heretofore have operated between the ports of Savannah, New York and Boston, has been regarded as a most valuable adjunct, if not an integral part of the railway. The railway runs generally east and west, the steamship company north and south. The steamship line has been described as an "extension by sea" of the railway into the eastern markets, enabling it to compete with other railroads serving such markets and the south. Though because of the pressing need all of the ships of the steamship company have been requisitioned and taken over by the United States, it is not unreasonable to believe that when the war is terminated the service will be restored. There seems to be no dispute among the parties as to the advisability of retaining control of the steamship line in a plan of reorganization if that is possible.

Because of the lack of shipping facilities, the yet unadjusted value with the government of the ships requisitioned, the artificial control in large part of the traffic moving up and down the Atlantic seaboard, etc., it would be a difficult if not an impossible thing to fix a fair and equitable value upon the stock of the steamship company at this time except for liquidation purposes, and so far as I know none of the parties at interest...