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need to consider the abandonment application on its merits. The purpose for filing the application was to protect further erosion of the debtor's estate in the event a satisfactory reorganization plan was not approved, ratified, and consummated. Consequently, we deny the abandonment application, without prejudice to its refiling in the event reorganization is not effected within a reasonable period of time.
Inasmuch as Starer's application to acquire and operate the railroad property of the debtor is directly related to and contingent upon approval of the abandonment application, it too will be dismissed without prejudice.
REORGANIZATION PLAN RECOMMENDED BY THE
ADMINISTRATIVE LAW JUDGE
Pursuant to the provisions of section 77(d) of the Bankruptcy Act, a public hearing was held on the different plans of reorganization. The Administrative Law Judge recommended a plan which modified the Starer plan. The modification was prompted by a finding that the proposed lease arrangement would result in an increase in the debtor's burden. The lease arrangement still vests the burden of discharging the existing indebtedness with the railroad. Starer expects to liquidate the lien on the debtor's properties within 10 years, but the debtor would pay rental for 20 years, resulting in additional payments totaling $350,000. The Administrative Law Judge found the only tangible benefit of the lease arrangement would be relieving the debtor of a substantial portion of its overhead and substituting lease payments; which is insufficient to justify the stripping of NH&l's properties by transfer to the affiliated corporation. He concluded that the reorganized debtor should be operated without the proposed leasing arrangement.
He further found that the proposal to repay only the principal amount of the debt owned the Fund, without paying the accrued interest, was unfair and inequitable, inasmuch as Starer considers that operation of the properties will generate sufficient revenues to permit payment of the lease, thereby providing the affiliated corporation with an 8-percent return on its $250,000 investment. The anticipated earnings power was found to warrant payment of the Fund's claim in full, including accrued and unpaid interest.
In conclusion, the Administrative Law Judge found that adequate net income would be earned after consummation of the Starer plan of reorganization, as modified.
to the commuter service by Illinois and the Federal Government, which has resulted in the formation of three Illinois Local Mass Transit Districts formed under provisions of Illinois law, with statutory power to apply for and administer Federal and Illinois State capital grants. These grants have resulted in increases in service equipment and facilities costing a total of $38.5 million. None of these facilities are located at points beyond Fox Lake.
Since no similar assistance has been forthcoming from the State of Wisconsin, the Milwaukee naturally directs its commuter-service policy in the direction of those entities which support its losing commuter service. The Illinois Local Mass Transit Districts are either indifferent to, or opposed to continuation of service beyond Fox Lake. The Milwaukee asserts that elimination of the losses suffered on the beyond Fox Lake portion of its operations would enable it to increase its economic efficiency on the remaining portion of the service in Illinois, where the common goal of the Mass Transit Districts and the carrier, is to relieve the Milwaukee of the continuing economic burden of its commuter service.
Although evidence of possible future assistance from the State of Wisconsin in the form of Wisconsin Assembly Bill 1152 was introduced in this proceeding, the legislation is a long way from being passed. The fact that the subject trains operate for such a short distance in Wisconsin, carrying relatively few Wisconsin residents, cannot be expected to enhance the chances of obtaining economic assistance for the Milwaukee's Chicago commuter service from the State of Wisconsin.
Financial results of the operation.-According to the Milwaukee, the Fox Lake-Walworth train operation contributed $15,911 to the carrier's $2.2 million commuter-service deficit in 1972, and the projected loss for the fiscal year ending June 30, 1974, would be $19,810. These figures were computed by comparing the revenues with those expenses considered by Milwaukee to be savable should the considered trains be discontinued beyond Fox Lake. Appendix F4 sets forth these comparisons for the years 1971, 1972, and estimated for the fiscal year ending June 30, 1974. It should be noted that the 1971 revenue figures (taken from data set forth in appendix E) include ticket sales for the Chicago-Madison trains which were discontinued in May 1971, while the expenses are limited to only those considered by Milwaukee to be directly related to the service sought to be discontinued. Consequently the difference between the 1971 and 1972 losses shown in appendix F,
Taken from exhibit No. 15, submitted at the hearing by the Milwaukee.
rights of each class of creditors and stockholders; not discriminate unfairly in favor of any class of creditors or stockholders; conform to the law of the land regarding the participation of various classes of creditors and stock holders; be compatible with the public interest; and provide for fixed charges within the earning capacity of the carrier.
If the reorganization is to be successful, the capital structure of the reorganized company must be realistically related to its actual earning power, and consideration given to the investment in its property only to the extent that such investment is justified by the probable earnings reasonably foreseeable for the future.
Inasmuch as the proposed plan is a financial reorganization, it is basically, dependent upon the present and prospective earning power of the properties. Consequently, the merits of the proposed leasing arrangement must be determined by the effect such an arrangement will have on the reorganized company's capitalization and if the carrier will have the earning capacity to support the capitalization. It would be fruitless to approve a reorganization plan if it resulted in a capitalization that exceeded an amount which earnings would support. Additionally, working capital should be adequate to meet both immediate needs with reasonably sufficient reserves to meet contingencies.
The NH&I would generate a greater cash flow from operations under the Starer plan which involves two corporate entities, than if it was reorganized under the Administrative Law Judge's proposal to retain a single corporate entity. The following schedules show and compare cash flow projections compiled from evidence of record, using Starer's estimates of annual operating results, based upon 1971 traffic data. The income projections are based on before taxes data and on the assumption that operations had been conducted at the beginning of 1973.
Projected Cash Flow Under Starer Plan (Tables 1 and 2)
For railroad as lessee
net railway Operating income Cash flow
and $47 million, and net income after fixed charges and other deductions of deficits of $22.2 million and $8.6 million.
Public support.-Two of the three Illinois Local Mass Transit Districts engaged in assisting Milwaukee's commuter service passed formal resolutions supporting the proposed discontinuance, and the third district took a neutral position. The primary reason for the support of the Northwest Suburban Mass Transit District, owner of cars, is that its contract leasing the cars to the Milwaukee provides that the District must give serious consideration to assisting the carrier in proceedings before this Commission, towards the end of reducing costs and increasing efficiency of the commuter service. Additionally, it was hoped that some of the cars now used in the Fox Lake-Walworth service would be reassigned to the Milwaukee's West Line service. However, this eventuality is extremely remote since the trains would still operate between Chicago and Fox Lake, with layover in Fox Lake and there is no physical way of presently utilizing the cars on other lines.
The Greater Lake County Mass Transit District supported the proposal primarily because of the three additional stops contemplated at intermediate Illinois points, should the Fox LakeWalworth portion of the service be discontinued. One individual Milwaukee passenger also supported the proposal because he utilizes the service to and from Deerfield, III., one of the points which is now a stop on southbound train No. 118, and is to be added as a northbound stop on train No. 119, should the proposed discontinuance occur.
Public opposition.-There were 40 witnesses who appeared and testified in opposition to the proposed
ed discontinuance. Ten appeared in Chicago, two from the Wisconsin Department of Transportation appeared in Fox Lake (no local witnesses appeared) and 28 witnesses appeared in Walworth. Included were: representatives of United States Senator William Proxmire and United States Congressman Les Aspin, both of Wisconsin; 27 riders of the subject trains and others representing business interests, State and local governments and the Federal Urban Mass Transportation Administration.
Users of the trains were generally regular commuters making from three to five trips weekly. Most riders indicated a lack of extensive weekend use of the subject trains. All indicated that they would be put to considerable inconvenience as well as additional expense and extended travel time if the trains were discontinued. Two witnesses indicated that loss of these trains would end their commuting and
require them to sell their homes and move to Chicago. Alternative service on the C&NW was said to generally require additional automobile travel and unreasonably extend transit times. Most of the riders are generally satisfied with the service but would prefer an after 5 p.m. weekday departure from Chicago.
Virtually all of the witnesses in opposition expressed concern over the increased use of private automobiles and the effect thereof on air polution and the fuel shortage, should the subject trains be discontinued. Congressman Aspin also points out that plans for increasing restrictions on the use of private automobiles for commuting are being advanced, under the National Environmental Policy Act, for large urban areas throughout the country, and must be considered as having a bearing on the issue of future public need for the service in issue. Civic leaders and public officials expressed concern over the loss of area residential and business growth potential should the last passenger train service be discontinued. Officials point out that discontinuance, in this instance, would be contrary to the governmental policy of encouraging rural development
Many of the witnesses testified as to the growing nature of the Walworth area, as a year-round residence in addition to having summer resort qualities. They further emphasized the fact that Walworth area residents are in large measure “Illinois people” tied to the social and economic life of Chicago. The Assistant Chief Counsel of the Urban Mass Transportation Administration testified that a major objective of his agency is to preserve urban mass transportation as it now exists. He further indicated that there is no intention to limit the effect of Federal grants to the boundaries of a particular State, so long as the grants are utilized to preserve the mass transit service as it existed at the time of the grant.
The Wisconsin Department of Transportation conducted a 4-day headcount survey on the Fox Lake-Walworth trains, Thursday through Sunday, June 7-10, 1973. Questionnaires were distributed to the passengers and the results were tabulated and introduced into evidence in this proceeding. The more noteworthy results are as follows:
(1) Midweek a.m. service and Friday p.m. service most heavily used.