In re Wisconsin Cent. R. Co., 17104.

• Citation: 72 F. Supp. 669
• Decision Date: 19 December 1946
• Docket Number: No. 17104.,17104.
• Parties: In re WISCONSIN CENT. R. CO.
• Court: U.S. District Court — District of Minnesota

72 F. Supp. 669

In re WISCONSIN CENT. R. CO.

No. 17104.

District Court, D. Minnesota, Fourth Division.

December 19, 1946.

Samuel H. Morgan, of St. Paul, Minn. and M'Cready Sykes, of New York City (Stewart & Shearer, of New York City, of counsel), for Trustees under First General Mortgage.

Edwin Martenet, of New York City, for First General Protective Committee.

Henry S. Mitchell and Leonard H. Murray, both of Minneapolis, Minn., for Canadian Pac. R. Co.

Frank A. Janes, of Minneapolis, Minn. for Trustees of Superior and Duluth Division and Terminal First Mortgage.

Paul D. Miller and A. Albert Minton, both of New York City, and Bergmann Richards, of Minneapolis, Minn. for Protective Committee for holders of Superior and Duluth Division and Terminal First Mortgage Bonds.

James E. Dorsey and Donald West, both of Minneapolis, Minn., for Trustees of Debtor Co.

Stinchfield, Mackall, Crounse & Moore and Donald A. Holmes, all of Minneapolis, Minn., for Trustees of First & Refunding Mortgage.

Brill & Maslon and Josiah E. Brill, all of Minneapolis, Minn., for Protective Committee for holders of First & Refunding Mortgage Bonds.

NORDBYE, District Judge.

There were three matters presented: First, the petition and amended petition of the Trustees of the First General Mortgage for payment of certain interest coupons on the First General Bonds; second, the petition of the Trustees of the Superior and Duluth Division and Terminal First Mortgage and the Protective Committee for the holders of bonds of that issue for payment of certain interest coupons on said bonds; and third, the petition of the Superior and Duluth Protective Committee for an order directing the Trustees of the debtor to use surplus cash in their possession for the acquisition of outstanding bonds of the debtor at a discount.

The Superior and Duluth Group had heretofore filed objections to the payment of any interest on the First General Mortgage Bonds, but, at the hearing, counsel for the Superior and Duluth Protective Committee stated that, if the Court should deny the Superior and Duluth petition requiring the Trustees to purchase bonds at a discount with surplus cash, then no objection would be made to an order with an appropriate reservation clause granting the First General petitions for the payment of interest. Proof was thereupon offered by the First General Trustees in support of their petitions. In view of the withdrawal of objection by the Superior and Duluth Group under the condition heretofore stated, and upon the evidence offered in support of the First General petition, it follows that the petitions for the payment of interest on the First General Bonds should be granted unless the Court requires the Trustees to use surplus cash to purchase outstanding bonds at a discount, in which event there probably would be insufficient funds with which to pay any interest at this time.

After due consideration, the Court is of the opinion that the Superior and Duluth Group have failed to sustain the burden of proof resting upon them with respect to their petition for the payment of interest on their bonds. Interest has not been paid on any of the bonds since the advent of the receivership in 1932. This is the first petition that has ever been presented to this Court in which it is contended that the earnings of the Superior and Duluth Division have been sufficient to justify payment of any of the interest due on the outstanding bonds. At the hearing, certain estimates were made by Mr. V. V. Boatner of the earnings of the Superior and Duluth Division for the years 1940, 1942, 1943, and 1944. There is evidence which indicates that these estimates are at variance in certain material instances with the actual experience of the railroad during the years in question as to income and expenses. The estimates also are based in part upon the consideration of factors contrary to those actually existing. No attempt has been made to compute the earnings of the Superior and Duluth Division during the years from the inception of the receivership to the test years when the 1939 formula was applied. It is to be gathered from the testimony that the application of the formula for the test years in 1936, 1937, 1939, and 1941 shows a deficit for this division for each year except 1937. While it may be that the Superior and Duluth Division will show some earnings before interest charges during the war years, when unusual traffic was enjoyed by the entire road, it would be impossible for the Court to determine, on the showing submitted, whether there are any earnings for these bondholders so as to justify the payment of any of the interest coupons without an over-all picture of the earnings for this division during the entire period of the receivership. Every one recognizes that there were certain years when there were substantial deficits on the Superior and Duluth Division. Deficits would have to be offset against any earnings in order to determine whether interest has been earned. On the evidence submitted, therefore, the petition of the Superior and Duluth Group for payment of interest must be denied.

This brings me to the question of using surplus funds to buy outstanding bonds at a discount. On the assumption that there are $7,000,000 in surplus funds, the petition of the Superior and Duluth Group suggests three alternative plans. Under Plan No. 1, $3,500,000 would be used to purchase First General Bonds, $1,500,000 to purchase Superior and Duluth Bonds, and $2,000,000 to purchase Refunding Bonds. Under Plan No. 2, $5,000,000 would be used to purchase First General Bonds, and $2,000,000 to purchase Superior and Duluth Bonds. Under Plan No. 3, the $7,000,000 which the Superior and Duluth petition refers to as surplus cash would be used solely for the purpose of purchasing First General Bonds. At the outset, it seems clear that the only plan which could be given any consideration by the Court would be Plan No. 3. There is no satisfactory showing that there are any surplus funds which are, or can be, impounded for the benefit of the Superior and Duluth or Refunding Bondholders. The Trustees of the First and Refunding Mortgage and the Canadian Pacific Railway Company,...