value which simply cannot be measured by the traditional method of capitalization of earnings.
While a definitive finding, in my view, should not be made on the present, perhaps incomplete, record, I feel obliged to record the observation that, in the absence of persuasive countervailing evidence, the approach taken by the witnesses for the secured creditors, in arriving at their figure of at least $ 150 million, appears to me to be basically sound.
But even accepting the lower figure of $ 77.6 million scrap value, a transaction similar to that proposed in the Memorandum of Understanding would seem to be unacceptable. The.$ 1.6 million annual contribution towards freight expenses falls far short of a reasonable return. For present purposes, I see no reason to adopt any different standard than the 7.5% Rate determined by the ICC in the Amtrak proceedings. But even if a lower rate were justified, no rate as low as the 1% To 2% Range represented by the this return could pass muster.
It seems clear, upon analysis, that the air rights feature of the proposed transaction provides no measurable benefit to the Debtor's estate which could be considered in this connection. The Debtor owns these air rights now. If they are capable of producing income or other current values, they could presumably be developed without the intervention of SEPTA. Under the proposed agreement, there is no obligation on the part of SEPTA to develop them, to contribute toward their development, or even to upgrade the commuter system so as to enhance their value for future development.
1. For various reasons, including the enactment of the Regional Rail Reorganization Act of 1973, implementation of the proposed Memorandum of Understanding with SEPTA is no longer feasible. The Trustees' petition to withdraw their previous petition for approval of the Memorandum of Understanding should be granted.
2. Unless the payments contemplated by the interim agreement previously approved by this Court are paid promptly, the Trustees should proceed forthwith with the necessary steps to terminate commuter rail operations in the Philadelphia area.
3. On the assumption that the interim payments are made current and are kept current, the Trustees should proceed forthwith to negotiate with SEPTA, National Rail Association, Amtrak, and other interested governmental agencies for a permanent solution to the problems of commuter operations in the Philadelphia area. If the Trustees of the Debtor are to continue to provide commuter rail service, it must be on a basis which provides reimbursement of fully allocated costs, plus a fair return on the value of the properties devoted to such service. If property of the Debtor is to be conveyed or otherwise transferred to others for use in providing commuter service, the Debtor's estate must receive just compensation therefor.
ORDER NO. 1507
And now, this 18th day of March, 1974, it is ordered:
1. The 'Petition of the Trustees for Approval of Memorandum of Understanding with SEPTA' (Document No. 5442) is marked 'WITHDRAWN.'
2. The Trustees shall report to this Court, not later than March 27, 1974, the status of payments due from SEPTA covering commuter operations since July 1, 1973.
3. Unless the Trustees are able to report by March 27, 1974, that all payments due from SEPTA for said interim operations have been brought up to date, the Trustees shall, not later than April 1, 1974, file a further report outlining a program for prompt termination of the service involved.
4. The Trustees are directed to report, not later than April 8, 1974, the status of negotiations for a permanent solution to the problems of recurring losses on the Philadelphia area commuter service.