Re: PC: [Fwd: info about PC]

["Robert Holzweiss" <robert.holzweiss@xxxxxxxx>]

Paul Huerkamp, Jerry and PC listers:

Jerry wrote:

I'd like to find out the answers (if possible) about the PC assets sold to Conrail.

(1) How much mileage was sold to Conrail (route Miles)

Don't know exactly.  May want to check USRA Final System Plan.  Of course, minor changes probably occurred between July 1975 (USRA publication date) and April 1, 1976.  I have a copy of the FSP at home and will take a look tonight.

(2) Ultimately: after litigation: how much did the US government pay PC for the mileage sold to Conrail.

On conveyance day, the bankrupt carriers transferred their assets to Conrail but retained their debt obligations.  The complex question of assigning a value to the transferred properties soon stalled the valuation process pending a ruling by the special court (created by the 3R Act January 2, 1974).  After lengthy hearings and several suits brought by creditors of the bankrupt estates, the special court increased the USRA's valuation of the conveyed assets.  In addition, the federal government agreed to guarantee the price of Conrail stock exchanged for claims against the bankrupt properties.  The increased price together with the government guarantee and a desire to find a reasonably quick solution led the estates and the government to settle most of the claims out of court.   

To facilitate the quick and equitable solution, the USRA created certificates of value (CV's) to assure creditors, investors, and the estates fair value for their assets.  In exchange for their assets, each estate received Conrail Series B Preferred Stock.  If the market value of the Conrail stock dipped below the value of the conveyed properties, the estates could cash in their CV's to gain additional compensation from the federal government.  The Penn Central estate cashed in its CV's on 15 January 1981, after Conrail showed no signs of profitability.  In exchange for its worthless Conrail stock, the PC estate received $2.13 billion ($1,460,000,000 for assets conveyed on 1 April 1976 plus $67,000,000 in interest at 8% per annum).

By 1988, the government's total settlements with Conrail's component roads amounted to $2.865 billion, the second highest expense after the initial capitalization of Conrail.  Although critics charge that the government overpaid the estates for the assets of derelict railroads, in my opinion, the cost of the alternative (abandonment and liquidation) to the national economy pales in comparison.

Robert Holzweiss