Eicher's Dissent

In administering the Public Utility Act of 1935, SEC has been fairly consistent on one score: its power over capital structures (Section 10 of the Act) has been used to keep down utilities' debt, prevent them from over-bonding themselves in railroad fashion. But another major SEC objective is the integration of utility systems-breaking down scattered systems into their regional components under the "death sentence" (Section 11). Last week SEC settled a case which brought its Section 10 principles into collision with its Section 11 goal. Main casualty: New Deal Commissioner Edward Clayton Eicher, who was jolted into delivering his first one-man dissent.

The case was Floyd Odium's Ogden Corp., successor to Harley Clarke's bankrupt Utilities Power & Light system, which Odium has been splitting into its component operating properties since 1935. Biggest U. P. & L. property, Indianapolis Power & Light, was sold to the public three months ago (TIME, April 15). Ogden Corp. holds the U. P. & L. leftovers. Odium wanted to do something for Ogden's common stock, of which his Atlas Corp. owns 76%. He figured he could save around $110,000 a year by substituting a 2 1/2% bank loan for Ogden's 5% preferred. Atlas Corp. is also the largest holder of the preferred (68%), so most of the bank's money used to retire the preferred would go to Atlas.

Last week SEC sanctioned the deal. But SEC also pointed out that under an ordinary holding company case it would be unable to approve the substitution of senior debt for preferred stock. Reasons given for making an exception of Ogden: 1) Ogden admittedly exists for the purpose of liquidation; the new bank loan is therefore not long-term debt but a convenience yielding economies; 2) the proposed loan will be covered over three times by collateral of $14,914,024. Reason not given: Odium, whose liquidation of U. P. & L. is carrying out the intent of Section 11, deserves SEC expediting.

This pragmatic decision drew indignant prose from New Dealer Eicher. His dissent: "No ingenuity can square it with the standards of the Act. . . . Corporate management that, without contract compulsion, voluntarily doffs its Mother Hubbard of untrammeled business action [meaning its preferred stock] and dons a strait jacket of shortly-maturing secured debt deserves and should expect searching examination into the justification for its policy." Eicher's dissent overlooked the fact that Atlas sits on both sides of the table in Ogden Corp.; that, from a practical standpoint, the deal is largely bookkeeping. But he was cleaving to an abstract principle--the evils of debt--that the rest of SEC has trumpeted in the past, will doubtless trumpet again in other, less peculiar cases in the future.

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