Matter of New York, New Haven and Hartford R. Co.

4 B.R. 758
CourtDistrict Court, D. Connecticut
DecidedApril 14, 1980
Docket30226
StatusPublished
Cited by11 cases

This text of 4 B.R. 758 (Matter of New York, New Haven and Hartford R. Co.) is published on Counsel Stack Legal Research, covering District Court, D. Connecticut primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Matter of New York, New Haven and Hartford R. Co., 4 B.R. 758 (D. Conn. 1980).

Opinion

*760 TABLE OF CONTENTS

Page

I.HISTORY OF THE NEW HAVEN REORGANIZATION . 760

II.AMENDED PLAN OF REORGANIZATION OF THE NEW HAVEN .. 767

A. THE REORGANIZED COMPANY . 767

B. CLASSIFICATION OF CLAIMS AND INTERESTS AND

TREATMENT PROVIDED . 768

Class A Claims. 768

Class B Claims. 768

Class C and Class F Claims. 768

Class D Claims. 770

Class E Claims. 770

Class I and Class J Claims. 770

III. CLASS G AND CLASS H CLAIMS . 770

A. THE PARTIES’ VALUATION OF THE NEW HAVEN ESTATE . 772

The Trustee’s Methodology. 773

The First Mortgage Bondholders’ Methodology. 785

The Income Bondholders’ Methodology. 789

B. THE COURT’S RULINGS ON VALUATION . 790

Cash . 791

The Securities. 791

Intangibles. 796

C. THE COURT’S RULINGS ON CLAIMS . 797
D. DISTRIBUTION. 800

IV. RESERVATION OF JURISDICTION . 800

MEMORANDUM OF DECISION

ZAMPANO, Senior District Judge.

On July 7, 1961, the New York, New Haven & Hartford Railroad Company (“New Haven”) filed a petition for reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C. § 205, in the United States District Court for the District of Connecticut. At the time the New Haven was a financially derailed and wrecked railroad. For the next 17 years, Chief Judge Robert P. Anderson, later Circuit Judge, painstakingly presided over the reorganization proceedings with extraordinary skill, patience, common sense, and perspicacity. The voluminous record discloses thousands of pages of petitions, briefs, moving papers, exhibits, transcripts of hearings, and other documents. Judge Anderson’s numerous decisions and orders speak eloquently of his wise and effective judicial performance over the years in salvage efforts of the New Haven, with the result that it now emerges from the ruins with prospects of being a remarkably healthy enterprise of substantial value.

By May 1978, Judge Anderson had set in motion the procedural steps necessary to reorganize the New Haven and to terminate finally this complex and difficult case. Unfortunately, he died on May 2, 1978, and the matter was assigned to this Court for resolution.

I. HISTORY OF THE NEW HA VEN REORGANIZATION

In 1935 the New Haven first went into reorganization under Section 77 of the Bankruptcy Act and emerged 12 years later with a capitalization in part of 1) $95,703,-700 principal amount of series A first and refunding mortgage bonds due July 1, 2007, bearing interest at the rate of 4 percent per annum, and 2) $87,881,500 principal amount of general mortgage income series A bonds, due July 1, 2022, bearing contingent interest at the rate of 4% percent per annum. 1 At the time, with some 1,500 miles of line extending from Boston to New York, it was *761 the largest railroad in New England and the sixth largest in the Northeast region. 2

After a few years of superficial prosperity', the financial condition of the New Haven again deteriorated. By 1961, with current liabilities exceeding current assets by over $36,000,000 and losing cash at the annual rate of $18,000,000, the company filed a petition for reorganization under Section 77. 3 Judge Anderson approved the petition and three trustees were appointed to administer the rapidly declining railroad. 4

There were three possible courses of action for the parties: 1) seek termination of the operations of the transportation system and liquidation of the assets; 2) sell the bankrupt railroad to other profitable carriers; or 3) merge with a larger successful trunkline railroad. 5

Since it was immediately apparent that no other railroad was interested in . purchasing the debt-ridden New Haven, Judge Anderson gave careful and thoughtful consideration to the remaining options. Initially it appeared that “the value of the property in the estate of the Debtor as a going concern should exceed by far its value for purposes of liquidation,” and, therefore, he approved continued operations for the public good and in the interests of creditors. 6 Through “life-sustaining transfusions of credit,” 7 the trustees maintained the system’s passenger and freight lines.

Despite spartan economies and a sizeable reduction in the number of employees, staggering losses continued to mount and it soon became obvious that no reorganization plan that contemplated the New Haven as an independent operating business would be feasible. 8 Liquidation was deemed detrimental to the public interest 9 and, therefore, merger with a large, financially healthy railroad seemed to be the most logical and promising means of sustaining the New Haven’s transportation system. 10

When the Pennsylvania Railroad and the New York Central Railroad applied to the Interstate Commerce Commission for permission to merge on March 9,1962, the New Haven trustees promptly sought inclusion in a merged Penn Central system, both by private negotiations and by a petition to the Commission filed June 26,1962. 11 As noted by Judge Anderson, the “inclusion of the New Haven in the Penn Central merger was the only salvation for the New Haven as an operating railroad.” In re New York, N. H. & H. R. R., 289 F.Supp. 451, 456 (D.Conn.1968).

On April 6, 1966, after more than four years of deficit operations by the New Haven, the Commission approved the Penn Central merger, subject to the condition that the merged railroad would purchase essentially all of the assets of the New *762 Haven. 12 In addition, the Commission directed that a plan for inclusion of the New Haven in the Penn Central system be filed by October 27, 1966, upon such fair and equitable terms and conditions as the Commission might determine, subject to the approval of the reorganization court. 13

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