Frisco & Friends

Nobody knows the trouble that Chairman Edward Norphlet Brown of St. Louis-San Francisco ("Frisco") Railway Co. has seen. But a lot of people know him for an able troubleshooter. He railroaded for 27 years in Mexico, serving eleven years as president of National Railways of Mexico. In 1914 when Mexico's revolutionary atmosphere became impossibly hot, he resigned, going two years later to the chair of Pere Marquette, then called "Poor Marquette." His rehabilitation job there was so good that the Frisco, run down physically and financially, called him in 1919. Again he did a good job. A few years ago the road was running practically without him. But lately Chairman Brown has been back at his Frisco desk, hard at work. Last week he had the reward of seeing Frisco saved from receivership. The plan he had devised and put through may make history for other railroads.

Frisco simply could not earn interest on its $293,000,000 worth of bonds. Although the road's capitalization of about $70,500 per mile (the system has some 5,890 miles of track) is lower than the $80,300 average of all Class I roads, its density of traffic has never been great and the 3-to-1 ratio of bonds to stocks in the capitalization is unwieldy. When Reconstruction Finance Corp. loaned money to the Frisco last April it stipulated that by July 1 the company must find a way to lower its fixed charges if it wished further advances.

Last week the I. C. C. approved an R. F. C. loan of $3,390,000, enough to enable the Frisco to meet its July 1 charges. The essence of Chairman Brown's plan is that some of Frisco's big creditors are to extend it an interest moratorium on the prior lien and consolidated bonds. The difficulty of working out this simple idea lay in making the terms of the moratorium fair to the many different classes of creditors, most of whom must make special sacrifices. For the next five years Frisco's fixed charges will be about $3,500,000 against the old rate of $13,700,000. After 1936 and through 1941 they will be $9,900,000, or half of the road's average earnings available for interest for the eleven years since Federal management. If there should be a surplus after these charges, bondholders will receive higher interest. For the next five years interest will be paid in scrip which will receive 5% interest in cash. Until full interest is paid, a bondholders' committee will manage the road. It was made plain last week that all bondholders must approve of the plan, that recalcitrant holders may not expect special profits such as accrued to the St. Louis Southwestern holdouts. The plan bears the endorsements of the system's bankers (Dillon, Read, Chase Harris Forbes, J. & W. Seligman, Chemical Bank & Trust) and of insurance companies (Metropolitan, Prudential) with big holdings of Frisco bonds.

P: Last week 64 roads had reported their May results. Gross revenues were $235,000,000, a 30.8% decrease from last year while net operating income was $9,965,000, a drop of 73%, worst so far reported for any month this year. For the first five months gross revenue was down 26%, net operating income 50%. Twenty-seven of the reporting roads showed deficits. Among the losers was New York Central which, despite a reduction of $6,000,000 in expenses, fell $226,000 short of earning anything at all on its bonds, bank loans and R. F. C. loan interest.

P: Widely discussed in railroad circles last week was the possibility that the western roads might appoint a commission to regulate them, arbitrate among them, at the head of the commission to be an all-powerful "tsar." Such a ruler could eliminate duplications of service, reform methods of freight solicitation. The man selected would have to be a national figure, not an officer of any road. Walker Downer Hines, who managed the railroads for one year under Government ownership, was mentioned as a possibility. At present Mr. Hines is eastern counsel for Great Northern Railway, paying particular attention to merger moves. Last week he was on one of his infrequent visits to his country home at Darien, Conn. Questioned, he said he approved of the western roads' plan but had had no intimation of impending tsardom.

P: In the railroad news of last week was Cincinnati Southern Railway, only municipally-owned steam line in the U. S. The C. S. runs 336 miles between Cincinnati and Chattanooga. It was begun in 1869; the first train ran eight years later. It crosses the Kentucky River on the first cantilever bridge in the U. S., long the proud boast of Cincinnati. In 1881 the road was leased to Cincinnati, New Orleans & Texas Pacific Railway which later subleased it to Southern Railway. Cincinnati receives $1,259,000 a year in rentals for its railway and its voters have refused to allow it to be sold. Last week Southern Railway stated it was moving the C. S.'s accounting offices to Atlanta. Attorney Robert Alcorn promptly sought an injunction, claiming the lease stipulates that headquarters must be kept in Cincinnati. The Southern will claim that the accounting offices, which have 200 employes, are not the headquarters. When the case is tried the judge must ponder the fine point of what quarters are headquarters.*

* A leased line headquarters never moved is that of Vermont & Massachusetts Railroad which has a total trackage of 73.36 mi. and has been leased to Boston & Maine ("Line of the Minute Man"), since 1874. The office is in Room No. 12, Third Floor, of the ancient building at No. 53 Devonshire St., Boston. No changes have been made since the road was leased, the office has no typewriters or telephones in it. On dark days the gloomy office is illuminated by a two-burner gas jet. The annual report is read from a sheet of foolscap and the ballots for election of directors are written in longhand. Stockholders are furnished free transportation to the annual meeting under the terms of the lease, but none appeared at the last meeting.

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