The Financial Policy of Corporations

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In other words, besides having their interest made contingent on earn- ings, the old junior bondholders were actually assessed. But the reorganization managers were not satisfied with merely a temporary reduction in fixed charges. In a supplementary plan, under the thoroughly justifiable excuse of bringing into a close union and coherent structure all of the Wabash lines, the reorganization managers forced the holders of upwards of nine of the old underlying first mortgage bonds, bearing an ave...rage of nearly 7 per cent interest,^* to accept new 5 per cent bonds issued under a blanket first mortgage. And they forced the holders of the underlying second mortgage bonds, mostly bearing 7 per cent interest, to accept new 5 per cent bonds issued under a blanket second mortgage.^® In brief, the great Wabash reorganization, a landmark in the history of reorganization practice, not only collected an assessment on stockholders and junior bondholders and made contingent On earnings the interest on two large issues of junior bonds, but it also solidified into two senior blanket mortgages, bearing a low interest rate, practically all the underlying high interest- bearing bonds.

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