Judge signs order - keep trains going
Action is filed Sunday after Congress Balks at U.S. guaranteed loan.
PHILADELPHIA, June 21 (AP) - The Penn Central, the nations largest railroad, filed a bankruptcy petition today for reorganization, citing "a severe cash squeeze" because of heavy lossess in passenger and frieght operations.
The emergency actions by the directors of the Penn Central Transportation Co. followed the reversal of a promise by the Nixon administration, in the face of growing congressional opposition, for an immediate government guaranteed loan of $200 million.
The railroad said in the petition it was unable to borrow more money from any source.
Signed at home
The order was signed in the home of U.S. District Judge William Kraft Jr. at 5:35 p.m. after a morning and afternoon of secret conferences mixed with denials to newsman that anything important was going on.
Directors said in a terse statement that the court action "permits Penn Central to retain possession and continue operation of the railroad sustem and to conduct other normal buisness pending appointment of trustees by the court."
There was no mention of millions of dollars of short term loans, reportadly due tommorow, or how creditors and 94,000 employees are to be paid.
The directors said the petition, under section 77 of the U.S. Bankruptcy Act affects only the railroad and not any of the other Penn Central subsidaries - like the very profitable Buckeye Pipe Line Co., the Great Southwest Corp., Aruida Corp., Realty Hotels , Inc., and two tiny money making railroads: The Pittsburgh and Lake Erie, and the Detroit, Toledo, & Ironton.
Penn Central operates 35 per cent of the nations railroad passenger service and nearly two-third in the east. Last year it reported a loss of $182.3 million in passenger and freight business, while the other subsidaries earned a profit of $61 million. It was forced in Feburary of 1968 in the biggest transportation merger in the nations history combining the giant Pennsylvania Railroad and New York Central systems into a $6.5 billion corporation that ranks No. 6 in America.
Cash Tied Up
But instead of modernizing the passenger and frieght lines, an the merger anticipated when it was first proposed in 1957, Penn Central directors poured millions of dollars into diversification, tying up the cash it needed to pay off loans and bills in pipelines, hotels, and other real esate. That was the crisis that prompted a managment shake-up June 8, resulting in the firing of board chairman Stuart Saunders the architecht of ther merger , and his replacement by Paul A. Goreman, who had spent his entire 40 year buisness career with the Americant Telephone and Telegraph Corp. before retirement brought him to the Penn Central.
Then the defense department of President Nixon's approval sought to guarantee a $200 million loan to the cash short Penn Central. But when representative and senators voiced opposition the guarantee was withdrawn suddenly Friday
Directors of the railroad - the same ones also run the parents Penn Central Co., - met Saturday night and again Sunday to work out the bankruptcy plea.
The directors said that the court order, reportedly signed by Kraft at his home, permist Penn Central "to retain possession and continue operation of the railroad system and to conduct other normal buisness pending the appointment of trustees by the court." The trustees must be approved by the interstate commerce commission.
The railroad said it is to notify some 94,000 employees "to stay on the job and to continue to perform their usual duties."
"This procedure is unlike ordinary bankruptcy which contemplates liquidation," Penn Central said.
The petition under the Federal Bankruptcy laws became a strong possibility after Penn Central became a strong possibility after Penn Central officials, headed by boaard chairman Paul A Gorman were rebuffed at a Washington meeting with Rep Wright Patman, D-Tex., in an attempt to relax his oppsition to a loan guaranteed by the Defense Department.
The appeal for a government guaranteed loan came on the heels of a failure last month to float at $100 million debenture at over 10 per cent interest.
Many Other Assests
With many non-railraod subsidies, such as pipelines, real estate, and amusment parks, Penn Central has assets of more than $6.5 billion, and its annual revenues make it the sixth largest private corporation in America.
After the merger its stock climbed to a high of $86 a share. It closed Friday at 11 1/8. There are 23.1 million outstanding shares held by more that 118,000 persons, including many of the railroads 94,000 employees. Penn Central reported a loss of $121.6 million last year and an $80 million loss so far this year.
Pittsburgh Post Gazette Monday June 22, 1970