ERIE'S FOURTH

A weary veteran of U. S. railroading is the bankrupt, 108-year-old Erie. In her gilded years she fell in with bad company--flamboyant Jim Fisk, piratical Jay Gould, pious Daniel Drew. Together they manipulated her back and forth from bonanza to bankruptcy, got her known as the "Scarlet Lady of Wall Street." Exhausted, the Erie had collapsed three times by 1895. Then she reformed. Under Van Sweringen control, she became a respectably operated road. But her capital structure never really recovered from Jay Gould's attentions, and she never again paid a dividend on the common. In 1938 Erie chugged into receivership (whither eleven Class I roads had preceded her) for the fourth time.

With the Supreme Court's Los Angeles lumber case to guide it (TIME, Dec. 18, 1939), the ICC in reorganization cases has recently shown little mercy to common stockholders whose equity is under water. Its plan for the Missouri Pacific last January wiped the common out entirely. Last spring it worked out a plan for Erie. To placate the two major interests-- which had been bickering since Erie fell into receivership--ICC effected a compromise. The interests: 1) the Erie bondholders; 2) the C. & O., which held 56% of the voting power. The compromise: capitalization would be slashed from $490,953,630 to $322,692,250, fixed charges from $14,368,842 to $7,000,000 (1937 net railway operating income: $13,614,008). With new bonds, common & preferred issues in exchange for their holdings, bondholders would gain voting control of Erie while C. & O.'s interest would dwindle to 8%.

To become operative, ICC's plan must first be approved in Federal court, then be ratified by 67% of the company's security holders. Last week Judge Robert N. Wilkin gave tacit approval to the plan, by overruling objections to it. Tired of fighting, C. & O. indicated it would put no obstacle in the way of ratification.

Neither will the bondholders. If Erie (as is probable) comes out of the courts by January, she will not only be the heroine of one of the fastest railroad reorganizations in history, but may be the first Class I railroad to emerge from a section 77 reorganization.

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