AMINATION OF CHARLES D. MAHAFFIE TO THE WEDNESDAY, JUNE 25, 1952 UNITED STATES SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. tee met, pursuant to adjournment, at 9:30 a. m., in room Capitol, Senator Charles W. Tobey, presiding. Serator Tobey. SIPPY. Let us come to order, please. , the 1916 reports of this committee pointed out that ads in reorganization are not bankrupt at all in any * set se; and we pointed out two such railroads in particular: Bard the Gulf Coast Lines,76 4e Cotton Belt was actually brought out of bankruptcy ry forfeitures, merely by reaching certain adjustments of its particularly those which were owing to its parent comern Pacific. Is that not correct? MMATIE. That is correct, yes, sir. Sury. In the case of the Gulf Coast Lines, none of its default, either for principal or interest; yet the road is Aruptey. Is that not correct? " Mr. That is correct. I think it is correct as to the Ill in bankruptcy. *** Tor. The Commission's 1949 plan of reorganization at the stock of the Gulf Coast Lines has considerable *** more value than the stock of many railroads that are 2zation at all. Is that not right? *M Hove. Yes, sir. Ter. The only unpaid debt of the Gulf Coast Lines is *** of about $20,000,000 to its parent company, the Missouri Is" at not correct? MORE. It has the bonds, of course. Probably you have **** otly debt other than its outstanding bonds. Dr. That is right. Current bonds. M. Except current obligations. I wy. There is $20,000,000 of intercompany debt. M-RAFFE. That is correct. But that is in addition to the rds and current obligations. You asked if that is the Try. Is it not within the power of the Commission to adjustment of this intercompany debt, such as was ap* Leta 10% and 1170, 79th Cong., 2d sess. NOMINATION OF CHARLES D. MAHAFFIE TO THE WEDNESDAY, JUNE 25, 1952 UNITED STATES SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D. C. The committee met, pursuant to adjournment, at 9:30 a. m., in room G-16 of the Capitol, Senator Charles W. Tobey, presiding. Present: Senator Tobey. Senator TOBEY. Let us come to order, please. Mr. Mahaffie, the 1946 reports of this committee pointed out that some railroads in reorganization are not bankrupt at all in any ordinary sense; and we pointed out two such railroads in particular: the Cotton Belt and the Gulf Coast Lines.76 In 1947 the Cotton Belt was actually brought out of bankruptcy without any forfeitures, merely by reaching certain adjustments of its obligations, particularly those which were owing to its parent company, the Southern Pacific. Is that not correct? Mr. MAHAFFIE. That is correct, yes, sir. Senator TOBEY. In the case of the Gulf Coast Lines, none of its bonds are in default, either for principal or interest; yet the road is still in bankruptcy. Is that not correct? Mr. MAHAFFIE. That is correct. I think it is correct as to the bonds. It is still in bankruptcy. Senator TOBEY. The Commission's 1949 plan of reorganization recognized that the stock of the Gulf Coast Lines has considerable value-even more value than the stock of many railroads that are not in reorganization at all. Is that not right? Mr. MAHAFFIE. Yes, sir. Senator TOBEY. The only unpaid debt of the Gulf Coast Lines is an obligation of about $20,000,000 to its parent company, the Missouri Pacific. Is that not correct? Mr. MAHAFFIE. It has the bonds, of course. Probably you have in mind the only debt other than its outstanding bonds. Senator TOBEY. That is right. Current bonds. Mr. MAHAFFIE. Except current obligations. Senator TOBEY. There is $20,000,000 of intercompany debt. Mr. MAHAFFIE. That is correct. But that is in addition to the long-term bonds and current obligations. You asked if that is the only debt. Senator TOBEY. Is it not within the power of the Commission to propose an adjustment of this intercompany debt, such as was ap S. Repts. 925 and 1170, 79th Cong., 2d sess. proved in the Cotton Belt case, which would enable the Gulf Coast Lines to get out of bankruptcy? Mr. MAHAFFIE. I doubt if it is. It is a matter for the courts, Senator, as to whether property can be discharged. One subsidiary of the Missouri Pacific has been discharged by the court, when it was able to pay its debts. That was the Missouri-Illinois. And it is no longer in bankruptcy. That same thing, I think, has been suggested and brought to the court as to the Gulf Coast Lines, but it is a question for the court. Senator TOBEY. Yes. I think naturally the courts would look favorably upon any recommendation the ICC made. Mr. MAHAFFIE. Some courts do and some do not. Mr. MAHAFFIE. We long ago learned not to volunteer advice to courts. We were threatened with contempt a time or two for doing so. Senator TOBEY. You are specialists and they are not. They handle general matters, you handle these matters in principle. If you are confirmed-I might better say when you are confirmed-will you assure this committee that you will make every conscientious effort within your power to get this prosperous railroad out of bankruptcy in the speediest possible way? That is a desideratum, to get them out of bankruptcy if you can. Mr. MAHAFFIE. Certainly. If something comes that is within-if a proposal comes that is within our power and it is feasible to bring it out of bankruptcy, of course I want it out of bankruptcy. Senator TOBEY. Mr. Mahaffie, we have discussed case after case where the Commission has wiped out railroad securities on the basis of estimates of future earnings that turned out to be much too low. If you are confirmed, can you assure this committee that you will conscientiously strive with all the facts and power at your command to avoid any unnecessary forfeitures in the future? Mr. MAHAFFIE. Certainly. However, Senator, I have tried to make it clear that I have not favored forfeiture as such in any case. I have this morning before me some figures that might be of interest to you along the line we have been talking about. Senator TOBEY. I would be glad to have them. May I finish the question first? Mr. MAHAFFIE. Yes. Senator TOBEY. Just as you prefer. Mr. MAHAFFIE. I was going to cite the Denver & Rio Grande, and call attention to what some of the creditors received in that reorganization. We discussed it a little yesterday. As of a recent date what was received by certain creditors was worth only 8 percent of the amount of their claim. That is a creditor. When a creditor is getting only 8 percent, and that is all the securities he got are worth, it is pretty difficult under the decisions of the court and the statute we administer, to say that there is anything left over for people who are junior to him. That is true right through. I did not know the Bureau had it, but this morning one of the staff brought me tabulations of the whole group of reorganized railroads. The only one, according to these computations, where the junior credi now, is the Gulf, Mobile & Ohio. Many of them run down to 10, 12. 20 percent of their claim that they could realize now. Senator TOBEY. Is that a part of the Missouri system? Mr. MAHAFFIE. No, sir. It is an independent road. It lately acquired the Alton in a reorganization proceeding. Senator TOBEY. It is Gulf, Mobile & Northern? Mr. MAHAFFIE. It was at one time Gulf, Mobile & Northern. Senator TOBEY. It is the same road under another name? Mr. MAHAFFIE. Yes. First it acquired the Mobile & Ohio and then the Alton. Senator TOBEY. You have taken pride in the achievement of the Commission in bringing about reductions of funded debt and interest charges. If you are confirmed, can you assure this committee that you will exert every influence within your power to bring about the use of cash in the treasuries of railroads undergoing reorganization, now and in the future, to reduce their debts and to stop further interest charges from piling up on those debts? Mr. MAHAFFIE. So far as we have to do with it, where the cash can be so spent to advantage and without harm to the property, I always am for reducing debt and fully expect to continue that policy. Senator TOBEY. I am sure of that. You recall when Mr. Guy Thompson came before this committee 2 or 3 years ago he was submitted to criticism because, with the large amount of cash he had, he failed to buy more bonds. Do you recall that? Mr. MAHAFFIE. Yes, sir. Senator TOBEY. The principle, I think, is sound. In 1948, the Congress enacted section 208 of the Bankruptcy Act, which was the Reed amendment to the Mahaffie bill. We tried in that law to avert unnecessary forfeitures and to provide for the reasonable use of cash to retire debts at a discount. If you are confirmed, can you assure this Committee that you will conscientiously strive to carry out the new Tolicies contained in that legislation? Mr. MAHAFFIE. Certainly I will strive to do that as to any legisCation that Congress passes. But I should call attention to the fact that the Commission has been given no jurisdiction as to the acquisition of debt by the trustee while the trusteeship is going on, Senator, under the act you refer to. Senator TOBEY. I have asked you a great many questions over the past several weeks, and I have asked you to furnish various tabuations and other data. In all candor, I have been disappointed to nd that in many respects you do not know or do not remember the facts in many of these tragic forfeiture cases. And I have been isappointed to find that some of the data you have submitted is ot entirely clear and sometimes not entirely responsive to my requests. If you are confirmed, can you assure me that you will conscientiously poperate with all efforts of this committee to keep properly informed of the Commission's work, particularly in the field of railroad organizations? Mr. MAHAFFIE. Certainly. I do not think that I have ever failed to furnish any information, Senator. Senator TOBEY. In conclusion, this is a half question-and you ight say, as Shakespeare did, "For this relief, much thanks"-in Conclusion, I want to give you some assurances. We, the committee, htend to keep a watchful eye on the Commission. |