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TABLE OF REPORTS
CHAPTER X OF THE NATIONAL BANKRUPTCY ACT, AS

AMENDED

Reynolds Investing Co., Inc., Debtor
San Francisco Bay Toll-Bridge Co., Debtor..

Page herein 699 863

SECTION 11 OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

Community Power and Light Co.----
East Tennessee Light & Power Co...-
Tennessee Eastern Electric Co.....
Utilities Power & Light Corp..

201 985 985 118

SECTION 21 (a) OF THE SECURITIES EXCHANGE ACT

OF 1934 Alleghany Corp--6 S. E. C.

960 OF THE

SECURITIES AND EXCHANGE COMMISSION

[No. 885]

IN THE MATTER OF

CHARLES TRUE ADAMS, Trustee of the Estate of UTILITIES POWER & LIGHT CORPORATION, Debtor

and CENTRAL STATES POWER & LIGHT CORPORATION

File No. 44-50. Promulgated October 2, 1939 ACQUISITION OF SECURITIES BY THE ISSUER-RETIREMENTS AND REDEMPTIONS.

Approval. Joint application having been Aled by the trustee of a debtor corporation, a registered holding company, and its subsidiary, also a registered holding compady, pursuant to Rule U-12C–1 for approval of the acquisition by the subsidiary company of not to exceed $2,576,900 principal amount of its outstanding first mortgage and first lien gold bonds 54% series due 1953, such bonds to be acquired by tenders at a fixed price of 72 plus accrued interest, granted approval, subject to certain conditions.

APPEARANCES :*

Francis I. Baldy and Darwin Charles Brown, of the Public Utilities Division of the Commission.

Adams, Hawæhurst, Hawley & White, by Melvin M. Hawley and Roger Q. White, for Charles True Adams, trustee.

Matthews, Harmon, Karr & Springer, by Joseph R. Harmon, for Central States Power & Light Corporation.

SUPPLEMENTAL FINDINGS AND OPINION OF THE COMMISSION In our order entered herein on August 29, 1939, leave was granted to file such amendments as might be necessary to enable us to pass, pursuant to Rule U-12C-1, upon the acquisition by Central States Power & Light Corporation of its outstanding bonds with cash to be derived from the transaction with McCurdy described in the findings and opinion which we issued in connection with such order.1

•At the bearing of August 2, 1939, the following appearances were entered in this proceeding :

D. 4. Reaugh, of the Public Utilities Division of the Commission. Brown, Fox & Blum berg, by Nathan 8. Blumberg, for Atlas Corporation. Simpson, Thacher & Bartlett, by Douglas A. Calkins, for Atlas Corporation.

1 See In the matter of Charles True Adams, Trustee of the Estate of Utilities Power a Light Corp., Debtor, and Central States Power & Light Corp., 5 8. E. C. 868 (1939).

Such an amendment was filed on September 9, 1939, and the hearing, which had been kept open, was reconvened and additional evidence received.

It appears that Central States has delivered to McCurdy the securities which it agreed to sell to him and has received from him about $1,913,800 in cash ’ and $1,264,000 principal amount of its own first mortgage and first lien gold bonds, 572% series due 1953. These bonds have been surrendered for cancelation to the trustee under the mortgage securing them. The greater part of the cash, pursuant to the provisions of such mortgage, has been deposited with and is now held by such trustee. There remains outstanding $12,236,000 aggregate principal amount of bonds of the same issue, and the capital structure of Central States is now substantially as shown by the pro forma statement contained in Table I set forth in our above-mentioned findings and opinion (reprinted for convenience and reference on page 10, infra).

Central States now proposes to invite tenders of such remaining first mortgage and first lien gold bonds, 542% series due 1953, at 72 and accrued interest to September 30, 1939, and to purchase bonds so tendered up to an amount which (without allowance for the accrued interest which is to be paid from other funds) will be sufficient to exhaust, as nearly as may be, the cash derived from the transaction with McCurdy and now on deposit with the trustee, viz., about $1,855,413. We are now called on to pass upon these contemplated acquisitions of bonds by Central States under our Rule U-12C_1.

Central States intends to surrender to the trustee for cancelation as many of the tendered bonds as may be necessary to withdraw the purchase price (exclusive of accrued interest) of all of the bonds tendered and purchased, and use the cash so withdrawn to pay the purchase price (exclusive of accrued interest) of all of the bonds purchased. The mortgage permits, in the opinion of counsel to Central States, the withdrawal of cash on deposit with the trustee, representing proceeds from released property, equal to the full principal amount of bonds surrendered for cancelation.

The tender price of 72 and accrued interest was determined upon because, in the applicants' opinion, it is the lowest price apt to attract tenders sufficient to exhaust all of the available cash. The applicants expect that such price will be slightly above the market price at the

The cash received is approximately $41,000 less than Central States claims is due It and is carried on its books as an account receivable. See our order entered herein on September 12, 1939, being Holding Company Act Release No. 1730.

Preference is to be given to lots up to $5,000 principal amount, and purchases from larger lots will, to the extent practicable, be made pro rata. In addition, applicants propose to accept guarantees of deliveries of bonds made by any bank or trust company in the United States.

time when tenders are invited,' and, therefore, that sufficient bonds will be tendered to exhaust substantially the full sum of $1,855,413. On this assumption, about $2,576,900 principal amount of bonds would be acquired, of which about $1,855,400 principal amount would be surrendered to the trustee for cancelation in order to withdraw a like amount of cash, and, about $721,500 principal amount would remain in the treasury of Central States. Should insufficient bonds be tendered to exhaust all the cash, some of the cash would remain with the trustee subject to future withdrawal upon compliance with the provisions of the mortgage. In view of provisions permitting withdrawal of cash equal to full principal amount of bonds surrendered and in view of tender price of 72, approximately 72 percent in principal amount of the bonds tendered would be surrendered to the trustee for cancelation in order to withdraw substantially the purchase price of all of the bonds tendered (exclusive of accrued interest), and the balance (about 28 percent) of the bonds tendered would be held by Central States in its treasury.®

Viewing the contemplated transaction as though Central States were making an investment in bonds, it will be observed that at the price of 72 and interest, the yield to maturity is about 9.20 percent and the current yield about 7.64 percent.

Assuming, as seems likely, that about $2,576,900 principal amount of bonds will be acquired, Central States will save annually about $141,729 in interest, about $11,233 in charges for amortization of bond discount and expense, and about $2,422 for taxes assumed on bond interest; or total savings annually in fixed charges of about $155,384."

The following Table I shows the number of times charges were

• It was stated that as of September 25, 1939, the market price was high 71, close 70%. For the annual range in market price during the past 5 years see footnote 18 in our findings and opinion above mentioned.

. Their reissue would be subject to our Jurisdiction under Sections 6 and 7 and/or Section 12 (d) of the Holding Company Act. Counsel to Central States testified that if held in the treasury in canceled or uncanceled form they could later be surrendered to the trustee for the purpose of withdrawing cash or be used in lieu of cash in obtaining the release of pledged or mortgaged property. He testified that, in the event of another appli. cation for the release of pledged or mortgaged property, Central States intended to utilize them in that connection.

• See footnote 5.

Central States has of course already lost the income ($160,647.36) derived from the securities it formerly owned and recently sold to McCurdy. During the 12 months ended May 31, 1939, the interest and dividends received by Central States from this source amounted to $170,154.44, of wbich $9,507.08 represented dividends paid but not earned dur. ing 1938, offset by a provision for unearned income reserve of $9,507.08, representing dividends whlch were not earned by the Canadian subsidiary companies during 1938. Central States has also realized, through the cancelation of $1,264,000 principal amount of bonds, acquired in part consideration for Canadian securities, a saving in fixed charges of $69,520 in bond interest, $5,510 in charges for amortization of bond discount and expense, and $1,188 for taxes assumed on bond interest. Thus the net savings on the completed transaction of the sale of Canadian securities and use of cash therefrom for seceptance of tender of $2,576,000 principal amount of bonds will amount to $60,141.96 on & pro forma basis, after taking into account $10,813.11 of additional taxes.

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