MATTER OF BOSTON AND MAINE CORP.
| Decision Date | 19 March 1979 |
| Docket Number | No. 70-250-M.,70-250-M. |
| Parties | In the Matter of BOSTON AND MAINE CORPORATION, Debtor. |
| Court | U.S. District Court — District of Massachusetts |
Charles W. Mulcahy, Jr., Mulcahy & Mulcahy, Boston, Mass., for the trustees.
Joseph H. B. Edwards, Paul J. Lambert, Diane M. Kottmyer, Bingham, Dana & Gould, Boston, Mass., for first mortgage trustees.
Paul B. Galvani, Ropes & Gray, Boston, Mass., for Maine Cent. R. Co., and the Portland Terminal Co.
John T. Collins, Sherburne, Powers & Needham, Boston, Mass., for the Chesapeake & Ohio Ry. Co., the Baltimore & Ohio Ry. Co., and Western Maryland Ry.
Joseph Bartlett, Edward T. Robinson, Gaston Snow and Ely Bartlett, Boston, Mass., for the Madison Fund.
Memorandum on Debtor's Trustees' Petition for Authority to make Tender Offer
The Interstate Commerce Commission (Commission) by decision of June 23, 1978, has approved with certain modification, the Trustees' amended petition for authority to make tender offer for the 6% per annum first mortgage bonds and for reduction of first mortgage debt, and has certified to this court its approval of the tender offer proposal as an integral part of the First Step of the Trustees' Plan of Reorganization, together with a transcript of the proceedings before it, and a copy of its report and order, pursuant to Section 77(d) of the Bankruptcy Act. 11 U.S.C. § 205(d).
Following the filing of the amended petition with the court an information statement concerning the proposed tender offer was prepared by the Trustees and filed with the clerk of this court on September 21, 1977. Notice was published in The Wall Street Journal (national edition), The New York Times, The Boston Globe, The Monitor (Concord, New Hampshire), The Portland (Maine) Press Herald, and The Burlington (Vermont) Free Press, pursuant to the order of the court, of the availability of the information statement at the office of the debtor at 150 Causeway Street, Boston, Massachusetts. On October 23, 1978 an updated information statement was prepared by the Trustees and filed with the clerk.
On October 18, 1978, following certification on October 11, 1978 of the Commission's order and the transcript, the court ordered notice under Section 77(e) to be published in the newspapers mentioned above, and to be given all parties in interest of the time within which objections could be filed to the proposed tender offer, and of the hearing scheduled for November 15, 1978 of the amended petition for authority to make tender offer and any objections thereto. Objections were filed by certain parties.1 After hearing the arguments in support of and in opposition to the amended petition and the objections, and considering the report and transcript of the proceedings before the Commission, and the decision of the court on the Trustees' petition for classification of creditors and stockholders pursuant to Section 77(c)(7) 11 U.S.C. § 205(c)(7),2 the court hereby approves the proposed tender offer in accordance with the provisions of this memorandum, as part of the First Step of the Trustees' Plan of Reorganization.
The order of the Commission dated June 23, 1978, as supplemented September 11, 1978, authorized the Trustees to make a tender offer to redeem first mortgage bonds out of the restricted funds of the Debtor to the extent of no more than $33.060 million, at a price of $800 per bond of $1000 par value. In reaching its decision the Commission concluded that approval of the tender offer would be in the best interests of the railroad, that the tender offer has the support of the bondholders, and that it implements a financial restructuring opportunity afforded by the First Step of the Trustees' Plan of Reorganization.3
The Trustees by their amended petition seek authority to acquire $37.0 million par value of tendered bonds with $32.0 million drawn down from the restricted funds, which would represent a price of $850 per bond of $1000 par value. Under the Trustees' proposal the tendering bondholder would be required to waive all claims to interest accrued on the principal and unpaid interest. The proposal also included the following conditions. In the case of coupon bonds the tendering bondholders would be required to tender the February 1, 1970 and the July 1, 1970 coupons without additional compensation. Should more than $37.0 million par value of bonds be tendered, the Trustees seek authority to elect, but not be obligated, to purchase all of the tendered bonds up to the total of outstanding bonds. Should the Trustees elect to purchase less than all bonds tendered, the Trustees seek authority to purchase from the tendering bondholders on a "pro rata" basis.
During the proceedings relative to the tender offer the amount of first mortgage bonds outstanding has been $46,337,876. Accrued interest in default on the bonds amounted to approximately $22.0 million in December 1977. The amount of the Debtor's restricted funds approximated $52.8 million when the matter was referred to the Commission in October 1977. At the hearing before the Administrative Law Judge, to whom the Commission initially assigned the tender offer proposal, the Trustees conceded that certain liabilities aggregating $13.536 million4 have priority over the first mortgage bonds. At that time there were also potential additional priority claims amounting to $16.4 million.5 After analyzing the impact of the proposed tender offer on the restricted funds, the Administrative Law Judge (a) determined that reserves should be set up to meet both the conceded and the potential priority claims, that $5.0 million should be reserved for deferred maintenance, improvements and modernization, and (b) concluded that as a result of these reserves there would be available approximately $20.5 million of restricted funds for the proposed tender offer.
In the Commission's final decision of June 23, 1978, it disallowed the item of $5.0 million reserved by the Administrative Law Judge for deferred maintenance and improvements, and $7.560 million reserved for claims for personal injury, freight loss and damage, and administrative expenses. The Commission concluded that with the disallowance of these items aggregating $12.560 million there would be available $33.060 million of restricted funds for the proposed tender offer. No other claims reserved by the Administrative Law Judge were disallowed.6 The Commission accepted the judgment of the Administrative Law Judge that the Trustees should not be authorized to pay more than $800 per bond of $1000 par value. While it is not explicitly stated in the Commission's final decision, the court interprets the decision as approving the conditions set forth in the Trustees' petition concerning waiver by bondholders of interest, and the authority of the Trustees to elect to acquire all of the outstanding bonds or, alternatively, to purchase less than all bonds tendered on a "pro rata" basis.
At the hearing before the court on November 15, 1978, the Trustees assented to the Commission's modification of the proposal to make tender offer set forth in the Trustees' amended petition. Accordingly, the Trustees now seek authority to propose a tender offer to purchase $37.0 million principal amount of first mortgage bonds at the price of $800 per bond of $1000 par value, and to that end request authority to draw down not more than $30.250 million of restricted funds. This proposal, as before, would require the tendering bondholder to waive all claims to interest accrued on the principal of the bond and all unpaid interest.
At the time of the hearing the amount of Debtor's restricted funds was estimated to be $55.0 million, after deducting the amounts required to complete the settlement of the claim of the Northern Railroad and the settlement of certain real estate tax claims. The Trustees acknowledged the priority over the bondholders of claims amounting to $12.348 million as of June 30, 1978. They also detailed other potential claims for priority over the bondholders amounting to $15.424 million, but they disputed $11.5 million of this total for per diem charges of $8.1 million, and for claims under the "six months" rule and "necessity of payment" rule of $3.4 million.7 The aggregate of these items of conceded and potential priority is $27.772 million, which, if reserved in the restricted funds, would leave a balance of restricted funds amounting to $27.228 million. However, if the reserve for the conceded priority items were reduced by $6.791 million, the items disallowed by the Commission for reserves against restricted funds for claims for personal injuries, freight loss and damage, and administration expenses,8 and if the reserve for potential priority items were also reduced by $8.5 million,9 the amount of the claims for per diem charges and claims under the "necessity of payment" rule, which this court found were not entitled to priority status over the bondholders,10 the balance of restricted funds would then amount to $42.519 million.
A tender offer by a railroad in reorganization to accomplish reduction of secured debt is not a usual step in the ongoing process of seeking to rehabilitate a debtor under a plan of reorganization by a readjustment of its debt structure in the interests of creditors and stockholders and the public interest. However, there is no language in Section 77 which prohibits the interim certification by the Commission to the court of such a step. The role of the court after Commission approval and certification is independently to examine the tender offer proposal and to approve it if satisfied that it meets the requirements of Section 77(e) of the Bankruptcy Act. 11 U.S.C. § 205(e).
The proposed tender offer here is an integral part of the First Step of the Trustees' Plan of Reorganization. Acquisition of approximately $37.0 million principal amount of first mortgage bonds...
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Boston and Maine Corp. v. First Nat. Bank of Boston
...denied the request without prejudice because it had not been noticed to and briefed by all parties in interest. In re Boston and Maine Corp., 468 F.Supp. 1010, 1015 (D.Mass.1979). On March 26, 1979, Madison petitioned the Reorganization Court for payment of six percent interest for fifteen ......
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Matter of Boston and Maine Corp., Bankruptcy No. 70-250-M.
...to acquire the bonds. This court approved the tender offer proposal authorized by the Commission. In the Matter of Boston and Maine Corp., Debtor, 468 F.Supp. 1010 (D.Mass.1979). When the tender offer was finally accomplished in 1979, it resulted in the acquisition and retirement of $36,992......