CARRIERS: Tarnished Plate

In 1916 the famed Van Sweringen brothers bought their first railroad—the Nickel Plate (New York, Chicago & St. Louis R. R.)—from the New York Central for $8,500,000. The road made money steadily for 15 years. But between 1927 and 1929 the Vans made a second, less prudent purchase. After a spectacular tussle with the Taplin interests (Pittsburgh & West Virginia R. R.), which resulted in a virtual corner on the stock market, they bought control of the Wheeling & Lake Erie Ry.

To finance the deal, the Nickel Plate floated $20,000,000 in 6% notes due in 1932. But when the notes matured, the Nickel Plate was losing $4,000,000 a year (it earned $7,000,000 in 1929) so the road paid 25% of each note in cash, got a three-year extension from the noteholders for the rest. In 1935 things were no better and the maturity date was again extended —to Oct. 1, 1938.

This year, as usual, the tarnished Nickel Plate cannot make the grade. In first seven months it lost $2,003,779, contrasted with its $1,510,936 seven-month profit last year. Hence, last summer it asked the noteholders to wait until 1941, added that it would need almost a 100% affirmative reply for this third extension.

Last week, three days after the deadline, only 83.5% of the old notes now totaling $15,000,000 were on deposit for exchange. Nickel Plate’s President George D. Brooke, however, declared the extension plan operative. Next day, prices of the notes skyrocketed to 84, new 1938 high and 23¼ points above the previous day’s close. The fact that price gyrations occurred several hours before official statements were issued prompted both SEC and the New York Exchange to start investigating the whole affair.

At week’s end $2.500,000 of the notes still remained undeposited and six creditors had started to sue for their money.

Warned President Brooke: “Substantially all the notes must be deposited if the Nickel Plate Railroad is to be assured of avoiding reorganization under Section 77 of the Bankruptcy Act.”