RAILROADS: MoPac Wins Its Freedom

Six months after George H. Moore became a judge in St. Louis’ Federal District Court in 1935, he got his first big case: the Missouri Pacific reorganization in bankruptcy, already in its third year. Last week, 20 years and two months later, Judge Moore, 78, settled the case, and gave the final O.K. to MoPac’s reorganization. At the last minute a group of bondholders holding only one-third of 1% of the total claims against MoPac went to court to block the plan, but Judge Moore swept aside their objections as “frivolous.” With that, the 9,710-mile Missouri Pacific, sixth longest U.S. rail system, came out of bankruptcy and back into private hands. The first major railroad to go into reorganization under Section 77B of the Bankruptcy Act, it was the last one out.

MoPac had wrecked itself by going too fast. After World War I it merged other roads into its system and issued securities to pay for them. When the Depression hit and traffic was cut in half, the road collapsed under a funded debt of $410 million. Unpaid interest rose to $21.5 million, and the road ran out of working capital. More than a dozen classes of security holders and debtors clamored for recognition of their claims, among them rambunctious Robert R. Young, who had inherited 63% of MoPac’s common stock when he bought the Alleghany Corp.

Slowly MoPac began its comeback under Trustee Guy A. Thompson. In 1941 the road went into the black for the first time, and the following year piled up a profit of $30,649,668. As the road grew stronger, so did the arguments among the bondholders and stockholders over who should get the fattening prize.

Three times after 1940, the ICC approved reorganization plans, but each plan was hung up by Bob Young in court because it favored bond or preferred stockholders and excluded common shareholders (TIME, Dec. 10, 1951). The approved Plan No. 4 for the first time gave common stockholders a share in the reorganized company, won the approval of twelve out of 14 classes of creditors and stockholders, including Young.*

The Missouri Pacific that emerged from court last week looked stronger than ever. The road is 100% dieselized, with $342 million worth of new cars, locomotives and other facilities added between 1946 and 1955. It has netted more than $11 million in 1954, and its freight cars are younger than the national average. Appointed as new president: Paul J. Neff, a Missourian who has been with MoPac or its subsidiaries since 1926 and who has actually been running the road since 1946 as chief executive officer.

* The reorganization plan gives holders of the 828,395 shares of old common stock some 40,500 shares of new Class B common in a 1-for-20 exchange. Holders of the 718,000 shares of old preferred stock will receive 1,900,000 new Class A common (with preference in dividends), plus additional shares of Class A common for unpaid dividends. Both classes have equal voting rights, but with 1,900,000 shares of Class A created v. only 40,500 shares of Class B, the A stock controls the road. Obligations for equipment remain in force, while holders of another dozen types of securities are to be repaid in proportion to the priority and value of their claims.