Portent Approved

A onetime Rhodes scholar whose first big job was assistant to famed Criminal Lawyer Clarence Darrow in 1910, Charles D. Mahaffie was appointed to the Interstate Commerce Commission eight years ago. Since then he has been ICC's chief dissenter -- notably on railroad reorganizations which, he said in 1936, "have not been sufficiently drastic." Last week, with Commissioner Mahaffie alone dissenting, ICC approved a reorganization plan as drastic as any ever devised for a major U.S. railroad. Under this plan, portentous for an industry snowed under by its bonded debt, Chicago Great Western Railroad's capitalization will be cut from $139,247,313 to $62, 291, 827, its annual fixed interest charges from $1,705,532 to $767,071. Common stockholders will not get a cent; preferred stockholders will swap their shares (par value: $46,073,500) for new common stock (par value: $11,518,375); first-mortgage bondholders will get new stocks and bonds and 67.92% of the voting power.

First reorganization of a major Class I carrier approved by ICC, this pro-bondholder plan is a far cry from most of those adopted before 1933's amendments to the Federal Bankruptcy Act. Formerly, the practice was for underwriters to get a friendly creditor to bring suit in a friendly court, thus in effect pick their own receiver--who generally favored stockholders over bondholders; often railroads were in as bad shape after reorganization as before. Under Section 77, ICC can insist on its own reorganization terms or rewrite plans originally submitted. ICC accepted almost wholly the trustee's draft of the Great Western plan, which will take effect Jan. 1, 1939 if approved by the Federal Court in Chicago.

Organized in 1892. Great Western was sold under foreclosure in 1909. asked for reorganization under the Federal Bankruptcy Act in February 1935. It has never paid a common stock dividend, has never paid its $4 preferred in full. Last year the road piled up a $902,363 deficit. Had it been operating under the ICC-approved reorganization, it would have earned only 1.4% on its capitalization. This fact presumably prompted Commissioner Mahaffie to dissent again, ask for a more thorough revamping. Said he: "The majority approve a plan that cuts obligatory interest severely and to a basis that in the past would . . . have been adequately covered. But the plan now approved is for the future. ... A new structure should protect creditor claims to earnings as far as is practicable. ... It should be calculated also to prevent the necessity of future reorganization."

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