Great Northern Settlement

One notable thing about Great Northern R. R.'s capitalization is the total absence of common stock.* Another is a $100,000,000 issue of bonds on which this conservative carrier has been paying 7% interest since the securities were offered in 1921. The bonds mature next summer and like the good manager he is. President William P. Kenney started months ago to lay plans for meeting them. It is the biggest railroad maturity of 1936. Mr. Kenney's 8,300-mile system has been a good client of the House of Morgan and George Fisher Baker's First National Bank since the old Hill days.

President Kenney was told that he would do well to issue $100,000,000 of 5% bonds due in ten years and convertible into Great Northern preferred. For a 1% fee ($1,000,000), plus a fee of 1% for all bonds not taken by present Great Northern security holders, the bankers would gladly underwrite the issue, thus assuring Mr. Kenney that he would have the money to pay off his maturing bonds on the dot. Considering the state of rail securities, the size of the issue and Great Northern's three-year deficit, the terms did not appear onerous--except to RFChairman Jesse Jones. Mr. Jones noted that on a when-issued basis the proposed bonds were already selling 8% above par. Evidently the public put a higher value on Great Northern's credit than did the bankers. So Mr. Jones wrote to Mr. Kenney as follows :

''We appreciate your efforts and those of your bankers to provide this money without coming to the Government but feel that in offering to pay such a high rate you will be hurting all railroad financing and unnecessarily penalizing your own security holders." Forthwith Chairman Jones offered to underwrite the entire issue, provided the coupon rate was cut to 4%. ''We just want to help the railroads," he explained.

At a special stockholders' meeting last week the Route of the Empire Builder formally accepted the Government's generous offer, which meant a saving over the bankers' offer of $1,000,000 annually, not including fees. Indignant, the Wall Street Journal whipped off an editorial on ''Taxpayers as Underwriters." pointed out that a year and a half ago Mr. Jones underwrote in effect a Baltimore & Ohio bond issue with a 4 1/2% coupon when bankers thought it should have been 5%. The bonds have since declined 9 points.

* No common stock was issued originally because no one would buy it. Equity was, and still is, represented by the voting preferred.

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