other liabilities ranking as administration claims, which cannot appropriately be resolved at this time; and (3) that adoption of the Trustees' proposals would not prejudice the interests of the Government (whose subrogation claim would be amply secured) or any other party, and would be consistent with their fiduciary obligations as Trustees.
It is clear that many parties to the reorganization proceeding contend that, notwithstanding the statutory priority accorded the trustees certificates in the Emergency Rail Services Act of 1970, 45 U.S.C.A. § 661 et seq., intervening events have made it clear that, in the final analysis, the Government's claims should be subordinated to at least certain other claims, or that certain setoffs against the Government's claims should be allowed. The Trustees' suggestion that these contentions should not be foreclosed by requiring immediate payment of the trustees certificates at this time may have merit. But I consider it unnecessary to explore that suggestion in detail, since I am persuaded that the impending cash problems of the Debtor plainly require that the Government's petition be denied.
Financial projections now available are based upon the assumption that the conveyance to Conrail will take place not later than March 1, 1976. While it now seems unlikely that this assumption will prove valid, it is obvious that the problems disclosed by the existing projections will not be lessened by postponement of the conveyance date.
The Trustees' responsibilities will not end with conveyance. Assuming that they will be able to obtain adequate support for rail operations until the conveyance, the Trustees will thereafter be required to manage the surviving enterprise until the reorganization process is completed. Because of the many existing uncertainties, which are well known and need not be detailed here, it is somewhat difficult to make precise predictions as to the nature and form of the surviving entity. Preliminary planning by the Trustees, based upon what are believed to be minimum requirements, indicates that from March 1, 1976 through December 31, 1976, it is probable that the Trustees will receive approximately $15.6 million in additional cash, but will have incurred $20.4 to $25.4 million in direct operating expenses. This does not include any provision for pension obligations which, depending upon arrangements yet to be worked out with Conrail, may be substantial.
During the same period, the Trustees will be faced with a further cash problem, in that they will be required to meet current liabilities attributable to pre-conveyance operations, which will exceed current assets by approximately $230 million.
The Government recognizes the magnitude of the cash problems confronting the Trustees, but advances two lines of argument: (1) the $50 million now in dispute is too small a sum to solve the Trustees' post-conveyance problems; and (2) pending legislative proposals may provide an alternative means for the solution of these post-conveyance problems.
It is of course correct that $50 million will not totally solve a $230 million-plus problem. It is equally true that a $180 million problem is preferable to a $230 million problem. In short, the Government's first argument simply does not provide a reason for directing the Trustees to deplete the cash resources of the estate at this time.
The Government points out that legislation recently passed by Congress, but not yet submitted to the President, includes provisions which would amend the RRRA by adding thereto a § 211(h), which is addressed to the problem of post-conveyance payment of pre-conveyance current liabilities. The Trustees and creditors point out that the proposed legislation deals only with certain kinds of pre-conveyance liabilities, and that it involves many other unattractive consequences. For present purpose, it suffices to state that the legislation has not yet been enacted. In thus concluding that the pendency of this legislation does not furnish a basis for action by this Court at this time, I intend no suggestion either way as to whether, upon passage of the legislation, it would be appropriate for this Court to cause the obligation represented by the trustees certificates to be converted into the kind of obligation contemplated by the proposed § 211(h).
Having concluded that the Trustees' ability to carry out their responsibilities would be seriously jeopardized by granting the Government's petition, and that the rights of all parties, including the Government, would be adequately protected by adoption of the Trustees' proposals, I have heretofore, on January 14, 1976, entered Order No. 2158, directing the Trustees not to pay the $50 million principal installment on the trustees certificates falling due January 15, 1976, but instead to set up an escrow fund in that amount subject to further order of the Court.
John P. Fullam / J.
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 406 F. Supp.]
ORDER NO. 2158
AND NOW, this 14th day of January, 1976, upon consideration of, and hearing on the "Petition of the United States of America for an Order Relating to Trustees Certificates (Document No. 9697), for the reasons to be set forth in a memorandum to be filed shortly, it is ORDERED that:
1. The Trustees are directed, subject to further order of the Court, not to pay the principal amount of the $50 million of trustees certificates payable to the holders thereof on January 15, 1976.
2. The Trustees are directed to notify the Federal Reserve Bank of New York, the fiscal agent for payment of the trustees certificates, of the directions contained in this Order and to serve a copy of this Order on said bank.
3. The Trustees are directed to set aside, or to cause to be set aside, subject to further order of this Court, monies sufficient to pay the principal amount of the $50 million of trustees certificates payable on January 15, 1976, (a) out of monies not subject to liens, or (b) out of monies subject only to the lien of the trustees certificates.
John P. Fullam / J.