Act itself adequately discloses what Congress intended to define as the public interest, and that all that is required is performance of the normal judicial function of fact-finding.
Unless there is a finding that the Debtor is reorganizable under § 77, there is no necessity for making a public interest comparison under § 207(b). Since I have reached the conclusion that the Debtor is not reorganizable, there is no present necessity for resolving the second phase of the jurisdictional argument.
II. Definition of 'Reorganizable on an Income Basis Within a Reasonable Time under § 77 of the Bankruptcy Act'
The parties are not in complete agreement as to whether the standards for determining reorganizability under the Act are different from, or identical to, the standards of § 77. More importantly, there is lack of agreement as to what constitutes a valid plan of reorganization under § 77.
For example, the New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970) recognized as valid a plan of reorganization in which the Debtor would first dispose of its rail operations and then reorganize as a holding company. But when the Penn Central Trustees filed a somewhat similar plan, the ICC purported to hold that it would not constitute a plan of reorganization under § 77. While this ruling does not, of course, represent the final word on the subject, it serves to point up the potential for conflicting views.
I find it unnecessary to resolve this doctrinal dispute at the present time. For it is at least clear that in adopting the 1973 Act, Congress was attempting to deal only with the rail assets of railroads in reorganization, and that, for purposes of § 207(b) only a reorganization of those rail assets, pursuant to a plan involving continuation of rail service by the Debtor, would pass muster.
Moreover, I am persuaded that reorganizability must be determined on the assumption that the existing regulatory and operational setting will continue. From the very inception of these proceedings, it has been reasonably clear that, if certain conditions could be altered, the Debtor could be made viable. The needed changes -- elimination of plant redundancy, reductions in crew consists, full reimbursement for passenger service, improvement in rates and divisions, and, more recently, substantial governmental financial assistance -- are not within the control of the Trustees or this Court, and have not been realized.
The issue, then, is whether there is now any reasonable prospect that continuation of the Debtor's rail operations under existing constraints will produce enough net income, soon enough, to support adequately a realistic re-capitalization of the enterprise. Applying the familiar figure of speech, we are concerned with the existence and relative intensity of the light at the end of the tunnel, and also with the length of the tunnel and the further burdens involved in traversing it.
III. FINDINGS OF FACT
1. During the period from the filing of the Debtor's reorganization petition on June 21, 1970, to December 31, 1973, the Debtor's operations have produced losses in ordinary income, calculated in accordance with ICC regulations (49 CFR Part 1201, 501-51) totalling $ 851.1 million.
2. The Debtor has been able to continue operations during this period only by deferring payments of virtually all real estate taxes, rentals of leased lines, and interest (including mortgage and collateral trust bonds) other than equipment obligations.
3. Non-recurring income aggregating $ 155.3 million from trustees certificates, sales of real property and equipment, sales of securities, and drawdowns from escrowed funds, have been utilized to sustain operations.
4. The charts below show the ordinary losses, deferrals, and applications of non-recurring income on an annual basis and the detail relating to non-recurring income.
Summary of Financial Results
($ in millions)
Ordinary Rents and Non-Recurring
Income Interst Sources
(Loss) Oblig. * of Cash
June 21 to Dec. 31, 1970 $ (179.7) $ 142.8
Year 1971 (284.5) 163.9 $ 96.6
Year 1972 (197.9) 156.1 25.0
Year 1973 (189.0) 143.1 33.7
Total June 21, 1970 to
December 31, 1973 $ (851.1) $ 605.9 $ 155.3 **
Detail of Non-Recurring Sources of Cash
Sources 1971 1972 1973
Trustees Certificates Drawdown $ 75.0 $ 25.0
Tenants Tax Escrow Account 3.1
Proceeds from New Haven Property
Sale of Freight Cars to P & LE 7.3
M. B. T. A. Settlement $ 9.1
Proceeds for Madison Square
Proceeds from Sale of Contingent
Compensation Fund 6.5
"Agnes" Flood Loan 15.7
Total $ 96.6 $ 25.0 $ 33.7
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