Word: railroads
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...nation's largest railroad succumbed last week to a lethal combination of politics, tight money, mismanagement and fumbled Government rescue efforts. A federal court ordered the tottering Penn Central Transportation Co. into a bankruptcy reorganization. The order prevents creditors from collecting a mountainous debt, while permitting trains to run as usual. Its impact was felt far beyond the railroad. The Penn Central's financial collapse, largest in U.S. corporate history, spread anxiety among businessmen and Government officials about the fortunes of several other large corporations-to say nothing of other railroads...
Potential for Mischief. It was the Penn Central's liquidity crisis that forced the railroad to declare insolvency. In his petition to the court, Chairman Paul Gorman said that the line was "virtually without cash, unable to meet its debts, [and] has no means of borrowing." The petition declared only that the company could not repay $9,795,000 in commercial notes and $21,900,000 in debt and rental charges on its equipment, all due by July 1. But that is a minuscule part of the railroad's financial woes...
...transportation company lost $182 million last year, and by Government estimate is highballing toward a $150 million deficit this year. Though the railroad's parent holding company, Penn Central Co., has assets of nearly $7 billion, the bulk of its salable holdings of real estate, securities and other non-rail property is already pledged to secure some $2.6 billion of debt, including $700 million falling due this year...
...Penn Central's passenger service has been a particular plague. The railroad still runs 1,280 passenger trains a day-35% of the nation's total and 75% of the remaining long-haul sched-u'es. By Penn Central accounting, round-trip income from one New York-St. Louis train, for example, recently averaged $5,295 a day; but wages and other operating costs ran to $10,191. To pare such losses, the Penn Central two months ago petitioned the ICC to end all passenger service west of Buffalo, N.Y., and Harrisburg, Pa. Indignant protests from localities...
...railroad took on more and more costly debt, Manhattan bankers began to worry. They were particularly concerned when the Penn Central borrowed $59 million in Eurodollars early this year at interest rates of 10.1%. U.S. banks slammed their loan windows, partly because too many of Penn Central's readily salable assets were already pledged as collateral. In desperation, the company tried in late May to raise $100 million in 25-year debentures, only to abandon the effort when underwriters reported that they could find no buyers, even at 101% interest...