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estion NH&I

"Gives effect" to $6,000 of lease payments to the Electric Co.

Lease rental to affiliate is less than $35,000 since agreement under Starer's plan provides that lease rental for the first 2 years of operation would be $35,000 or operating profit, whichever is lesser. After the second year, lease rental is a fixed $35,000.

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This schedule indicates that the carrier would not be able to generate a substantial cash flow until the fifth year of operation. Consequently, a negative cash flow and a critical financial condition could easily result if projected revenues are overstated and/or projected expenses are understated. For that reason, the $35,000 annual lease payment shall include the lease payments to be made to the Electric Co.

It is incumbent upon this Commission to provide in an incomebased reorganization assurances that the debtor not be saddled with the same financial burdens as it now experiences in addition to its annual net loss. Under the plan recommended by the Administrative Law Judge, the projected deficiencies would be enough to negate approval. Further, it is doubtful that the $10,000 in working capital which the prior report contemplates would be sufficient to cover the railroad's working capital. It appears that Starer's estimates of expenses are undeniably low in light of the debtor's historical operations as evidenced in the record and thus, the working capital to be initially established should reasonably be $25,000.

To insure that the creditors receive fair and equitable treatment yet provide for reasonable assurance of a successful income-based reorganization, the total contribution by Starer should, together with other funds to be acquired through the Corporation, equal the value of the carrier's property.

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A review of the evidence of record shows that the value of the carrier's property to be not less than $300,000. Although Starer's

347 I.C.C.

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The elements requiring consideration in section 13a(1) proceedings are well established and include, the population of the community served; the public use of the service, the financial losses borne by the carrier in providing the service; the general condition of the carrier, and the burden on interstate commerce resulting from the operation. Erie Lackawanna Ry. Co. Discontinuance of Trains, 336 I.C.C. 206, 234. No single factor is determinative of the issue. The emphasis of the evidence in this proceeding is on the public need, or lack thereof, for the service, the financial burden of the carrier, the availability of reasonable alternative means of transportation, the environmental impact of discontinuance, and the effect of the operation in terms of constituting a burden on interstate commerce.

The evidence of record indicates that the Walworth area is growing and that utilization of the subject trains, although far below capacity, is on the upgrade. The Milwaukee's general financial condition has been described by us as “anemic" (Great Northern Pac.-Merger-Great Northern, 328 I.C.C. 460, 488), and nothing in this record requires a finding of any substantial change in that condition.

Alternative rail transportation is available, but the alternatives, requiring additional automobile travel for utilization, are not considered reasonable by the riders of the subject trains, particularly in light of environmental considerations and the fuel shortage crisis. Impending environmentally motivated restrictions on the use of private automobiles in large urban centers must also be considered as having a direct bearing on the future public convenience and necessity of maintaining adequate rail commutation services. As far as most of the 30 to 40 regular weekday riders are concerned, the subject service is vital to their continued commutation. However, weekend utilization, between four and nine passengers per trip, is so low as to make continuation of the service entirely unrealistic.

Considering the fact that the Milwaukee's own data indicate improving utilization of the service without any demonstrated financial savings through discontinuance thereof, the only logical result is to require continued operation of the weekday service. The savings resulting from elimination of the obviously uneconomical weekend runs should enhance the financial picture with respect to the weekday service. Furthermore, the Milwaukee should give serious consideration to revised scheduling of its trains to provide Walworth

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area patrons with an after 5 p.m. departure from Chicago so as to
attract more 9-5 working people as riders. It should also give con-
sideration to further rate increases. First, effort should be made to
obtain increases in intrastate rates to the current interstate rate
levels under the provisions of section 13(4) of the act. Secondly, if it
becomes necessary, further increases in interstate fares should be
sought.

It is well established that the Commission has no authority to im-
pose employee protective conditions in a section 13a dis-
continuance case, although the probable adverse effect of dis-
continuance upon employees is a factor to be considered in
evaluating the requirements of the public convenience and
necessity. In our opinion, the adverse effect upon employees re-
sulting from discontinuance of the subject weekend trains, would
not justify the continued operation thereof.

Contentions of the parties as to fact or law not specifically discussed herein have been considered and found to be without material significance, or not justified.

This proceeding does not involve a major Federal action significantly affecting the quality of the human environment within the meaning of the National Environmental Policy Act of 1969.

We find that the operation by the Chicago, Milwaukee, St. Paul and Pacific Railroad of train Nos. 601, 604, 605, and 610 between Fox Lake, Ill., and Walworth, Wis., is not required by the public convenience and necessity and that the continued operation thereof would constitute an undue burden on interstate commerce.

We further find that continued operation by the Chicago, Mil-
waukee, St. Paul and Pacific Railroad Company of train Nos. 118
and 119 between Fox Lake, Ill., and Walworth, Wis., is required by
the public convenience and necessity and that continued operation
for a period of 1 year from the date hereof will not constitute an un-
due burden on interstate or foreign commerce.

An appropriate order will be entered.
347 I.C.C.

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apprasial shows a value of approximately $272,000, the appraisal prepared for the trustee indicates a value considerably higher for the land alone. However, the latter appraisal appears questionable on several grounds, the principal of which relates to the largest parcel appraised. The problem there relates to availability of sewage disposal and, therefore, the usage to which the property may be placed.

Considering that the value of the property of the debtor is not less than $300,000, we would propose a modification of Starer's plan to enable us to make the necessary findings. Under our proposal, all the assets of the debtor would be transferred to a reorganized company in which Starer will have invested not less than $125,000 of his own funds. Thereafter, the reorganized company would transfer to the leasing corporation all the transportation property of the debtor and the reorganized company will receive, in exchange, capital stock. Upon transfer of the property, the lessor corporation will acquire such funds in such amount as may be required which, together with not more than $100,000 of the cash funds invested by Stater, will be used for the payment of the claims in categories 1 through 6, supra.

In essence, the modified plan would result in all creditors having a prior claim being paid in full. The elimination of the debtor's overburdened debt structure affords the best opportunity to generate adequate net income and gives the best long-range prospects for the future, leading us to conclude that the lease-back plan, as herein modified, is fair and equitable.

Inasmuch as the value of debtor's property as well as the assets available after reorganization are substantially less than the total claims of creditors, only the above-specified claims can be paid. The claims of unsecured creditors, as of the date of bankruptcy, June 5, 1970, apparently as well as presently, approximates $82,000, and the book value of the common and preferred stock as of the same date totaled $144,049.59. This latter amount has been considerably reduced, based on the evidence of record, as of this date. As of January 31, 1972, the debtor owed the Fund $224,053.48, including interest; accrued taxes totaled $10,383.99; and administration expenses, as yet, undetermined. The claims of the unsecured creditors cannot be satisfied within the scope of the available assets, and any dimunition in the carrier's capitalization would so jeopardize the possible success of reorganization as to preclude partial satisfaction of those claims. The unsecured claims against the debtor have no value and the stockholders have no equity and would be entitled to no new securities. See Northern

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Pacific Ry. v. Boyd, 228 U.S. 483. The debtor's lack of earning power since it commenced operations and its prospective earning power, as indicated by the evidence, support this conclusion. It is apparent, for all the above-stated reasons, that in ascribing value to the debtor's properties, including its earning power, past, present, and prospective, to the extent required under the law of the land, the claims of unsecured creditors of the debtor are without value and that neither they nor the lower ranking shareholders be alloted new stock or notes or allowed to participate in the reorganization. See New York, S. & W. R. Co. Reorganization, 257 I.C.C. 593.

Only in this manner can we be assured that the cash position of the estate is sufficient to carry through the reorganization without incurring such additional indebtedness as to gravely jeopardize the possibility of success.

We recognize that initially the plan as modified will not result in a reasonable return on investment, which is usually a requisite for an income-based reorganization. Earnings initially will be insufficient to support the capitalizaticn in the modification proposed herein. However, Starer has indicated an integral part of the reorganization plan is the development of substantial tourist traffic with an increase in revenues from this

from this traffic and through related concession sales. The lines of the railroad lie in an area which draws a considerable number of tourists and will provide a substantial base for operations which may be developed to the advantage of all parties, Starer, as well as local businesses. Additionally, freight operations presently being conducted will be continued so that advantages will flow through the entire area involved. The potential for development of a viable transportation service in the public interest leads us to conclude that the Starer plan, as modified herein, best meets all the criteria set forth in section 77, discussed above. An integral part of the plan of reorganization is the development

more substantial portion of tourist revenues for the Corporation through concession sales. In order to provide for an equitable arrangement in this regard between the reorganized railroad and the Corporation, any person intending to obtain concession rights upon the property leased to or owned by the railroad shall enter into a lease agreement with the new NH&I for the establishment of rental rates which are both fair and reasonable, and represent an equitable return on the property so used.

In the event that the Corporation, or any person holding a lease hold interest, makes improvements upon the properties of the

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