FINANCIAL SCHEME FOR THE BELIEF OF BAILWAY COMPANIES, SUBMITTED TO DIRECTORS, SHAREHOLDERS, AND THE PUBLIC FOE THEIR CONSIDERATION. IN TWO PARTS. WILLIAM LIYESEY. / PRICE ONE SHILLING. LONDON: PUBLISHED BY WATER LOW & SONS, 49, PARLIAMENT STREET, WESTMINSTER. [the right oir TRANSLATION of this work is reserved.] Entered at Stationers’ Hall. z=&\ * '15DeM6 11 S ' i ^ 1 r \1 RarWuftH^ b < V5.zzz » . ECONO^OS SEMINAR IN TWO PARTS. PART I. INTRODUCTION. The present price of the 3 per Cent. Consols is 89 or 90, which is equivalent to 3§ per cent., and, during the last war Government borrowed £75,000,000 in less than two years at a more favourable rate even than this. Railway companies, in the meanwhile, are obliged to pay, upon all their loans, rates varying from 3^ to 7 per cent. If they could procure loans upon the same terms as Government they would probably save nearly one million and a half annually. The present method of borrowing money by railway companies is inconvenient and expensive, unsatisfactory alike both to the companies and the public. The regulations imposed by Parliament as a security to the public in lending their money to railway companies have been so frequently violated, that the public, who have no means of ascertaining, in any case, whether the regulations are violated or not, have lost all faith in them—think they have no security at all—and hesitate about lending their money to railway companies on any terms whatever. The irregularities of a few of the companies have thus to a great extent depreciated all the railway property in the kingdom. Before anything can be done to benefit the railway com¬ panies this bad impression must be removed—the present regulations as to borrowing remodelled, and placed on such a footing as will effectually prevent the recurrence of such irregularities for the future. 8 To effect this it is proposed : That the several companies—a few whose affairs are unquestionable would suffice to begin with—form them¬ selves into an association, and under Parliamentary sanction become jointly and severally bound for each other to the extent of all their loan capital. That the association, under their united guarantee, should raise a new loan, and with this new loan pay off all their existing liabilities on debenture stock and bonds . That the money be raised in one general stock under some common title, say, for instance, The Railway Consolidated Debt Stock, The stock, as far as practicable, to be assimilated to the Government funds, so as to afford to the public the same facilities for investment as they now have in Consols, in the expectation that, under this new system, the stock may be raised upon the same or nearly the same terms as a Government loan. The companies to pay to the association a higher rate of interest than the association pay to the public, though less than they are paying now. This excess to be applied to the formation of a Redemption Fund, for the ultimate extinction of the debt without increasing the expenditure of the companies in the meanwhile. A FINANCIAL SCHEME FOR THE BELIEF OF RAILWAY COMPANIES. The National Debt by the last Parliamentary return was . . . £813,230,134 The Railway Debt by a similar return was 106,280,353 The National Debt has the credit of the nation as security for the investment. The Railway Debt has the security of a capital of three times its own amount together with the debt itself, having been in¬ vested in the undertakings for which the debt is contracted. These undertakings for the most part being at work and earning a revenue which, after paying interest on the debt, leaves a wide margin for dividend, but which is all liable for the interest on the debt in the first instance. The debt itself, under the present arrangements, having about the same chance of being paid off in one case as the other; but the principal being transferable, so long as the interest is regularly paid, the public are satisfied. 10 By the last Parliamentary return of railway statistics, issued in February, 1865, and giving results to the end of the year 1864, the capital authorised to be raised by all the com¬ panies in the United Kingdom is stated to be :— Share capital . . . £390,413,137 Borrowed do. . . 130,109,197 Total £520,522,334 And the amount actually raised to be as under :— Share Capital. Preference. Debenture Stock. Loans. Subscrip¬ tions to other Companies. Total. England ... 379,602,401 85,337,261 11,635,145 76,280,586 11,813,450 364,668,845 Scotland... 21,078,989 14,404,984 1,150,923 11,101,688 942,916 48,679,530 Ireland ... 14,074,089 4,905,381 263,473 5,648,538 378,703 25,270,182 214,755,479 104,647,626 13,049,541 93,030,812 13,135,099 438,618,557 This return gives the amounts of the different loans and the rates of interest thereon, but it does not give the total amount of interest in each case from which to calculate the average upon the whole. It would have been desirable to show the total amount paid for interest upon the debts of all the companies, and the saving that would be effected if the companies could borrow money on the same terms as Government; but it would occupy too much time to make such calculations for all the companies; a few of the principal ones, those having London termini, have therefore been selected as an illustration, and the saving in each of these cases is given in the Tables below. 1L TABLE A. Showing the proportion of Share Capital (Ordinary and Preference) to the Loan Capital (Debenture Stock and Bonds) of each of the following Companies on 31st December, 1864, extracted, as before, from the Par¬ liamentary Returns :— NAME OF THE COMPANY. Share Capital, Ordinary and Preference. Loan Capital, Debenture Stock and Bonds. Total Capital. Crystal Palace & South London Junction £ 524,770 £ 224,540 £ 749,310 Great Eastern. 18,930,499 5,597,811 24,528,310 Great Northern 12,612,536 3,846,549 16,459,085 Great Western . 32,649,969 13,276,449 45,926,418 London and Blackwall . 1,702,915 462^40 2,165,655 London Brighton and South Coast 9,398,402 3,045,916 12,444,318 London and North Western . 42,232,963 16,253,164 58,486,127 London and South Western . 10,780,896 4,782,069 15,562,965 London Tilbury and Southend. 650,636 149,800 800,436 North London. 1,872,345 616,154 2,488,499 North and South Western Junction 87,420 26,416 113,836 Metropolitan. 2,549,976 547,435 3,097,411 Midland. 20,925,389 5,493,135 26,418,524 South Eastern.. . 13,420,132 4,140,907 17,561,039 Victoria Station . 355,000 80,950 435,950 West London Extension ... 502,500 123,000 625,500 Totals 169,196,348 1 58,667,035 227,863,383 12 TABLE B. Showing the amount of Debenture Stock and Loans owing by the several Companies undermentioned, with the rates of interest thereon. (Extracted from the Parliamentary Returns to 31st December, 1864.) Name of the Company. 3 pr. Ct. Bi 31 4 4§ 41 41 £ £ £ £ ~d £ £ Crystal Palace Junction Comp. Great Eastern . 1,082,962 1,797,238 Great Northern . 5&660 2,869,685 599,131 Great Western . 243,398 13^026 5,300,485 6^908 London and Blackwall. 47,620 134,050 London B. & S. C.. 8,900 2,585,891 200,300 London & N. W. 700 3li,070 48,400 9,323,220 1&027 2,538,289 12,' 858 London & S. W. 1,100 12,050 2,917,490 118,267 London Tilbury & Southend North London . 118>75 74*525 North & South Western 516 3,000 Metropolitan . 10,000 Midland . L150 72^069 4,171*947 724,282 South Eastern . 1,614,256 627,875 Victoria Station. 11,900 35,450 West London Extension Total. 700 313,320 194,079 24,9S7,260 31,053 12,162,892 19,766 4| 5 5* 6 Total. Crystal Palace Junction Comp. £ £ £ 111,925 £ £ 112,615 £ 224,540 Great Eastern . 2,149,992 223^516 244,103 lo’ojooo 5,597,811 Great Northern . 192.750 132,323 3,846,549 Great Western ... . 5,927,002 862^509 923,061 13,276,449 London & Blackwall . 273,570 5,500 2,000 462,740 London B. & S. C. . 148,975 101,850 3,045,916 London & N. W. 3,520,359 154,577 325,664 16,253,164 London & S. W. 1,296,962 286,345 149,855 4,782,069 London Tilhury & Southend 149,800 149,800 North London . 320,054 103‘200 616,154 North & South Western 20,900 2,000 26,416 Metropolitan . 376,315 LUO 154,010 547,435 Midland . 369,459 53J28 100,500 5,493,135 South Eastern . 1,192,581 142,600 583,595 4,140,907 Victoria Station. 33,600 80,950 West London Extension 123,000 123,000 Total. 16,095,379 1,833,975 2,661,986 100,000 266,625 58,667,035 - - SUMMARY OF TABLE B. 700 at the rate of 3 per cent. 313,320 55 3| 55 194,079 55 31 55 24,987,260 55 4 55 31,053 55 4* 55 12,162,892 55 . 55 19,766 55 4| 55 16,095,379 55 41 55 1,833,975 * 55 4f 55 2,661,986 55 5 55 100,000 55 5| 55 266,625 5 > 6 55 58,667,035 13 TABLE C. Showing the amount of the Loan Capital of the following Companies 31st December, 1864, the total amount of interest paid thereon, with the saving that might be effected in each case at the rate of 4 per cent, and 3| per cent.:— NAME OF THE COMPANY Loan Capital. INTI Rate. SKEST. Amount. Difference between the amounts now paid and 4 per cent. Difference between the amount now paid and 3£ per cent. £ £ s. d. £ s. d. £ s. d. Crystal Palace June- tion Railway. 224,540 present rates 12,353 3 0 4 per cent. 8,981 12 0 3,371 11 0 3| per cent. 7,858 18 0 4,494 5 0 Great Eastern . 5,597,811 present rates 244,773 0 0 4 per cent. 223,912 8 0 20,860 12 0 3f per cent. 195,923 7 0 48,849 13 0 Great Northern. 3,846,549 present rates 157,515 0 0 4 per cent. 153,862 0 0 3,653 0 0 3^ per cent. 134,629 0 0 22,886 0 0 Great Western . 13,276,449 present rates 589,686 0 0 4 per cent. 531,058 0 0 58,628 0 0 3 1 per cent. 464,675 14 0 125,010 6 0 London and Blackwall 462,740 present rates 20,274 0 0 4 per cent. 18 ; 509 12 0 1,764 8 0 3^ per cent. 16,195 18 0 4,078 2 0 London Brighton and South Coast . 3,045,916 piesent rates 124,078 10 0 4 per cent. 121,836 12 0 2,241 18 0 3^ per cent. ] 06,607 1 0 17,471 9 0 London and North Western . 16,253,164 present rates 676,877 10 0 4 per cent. 650,126 11 0 26,750 19 0 3£ per cent. 568,860 14 0 108,016 16 0 London and South Western . 4,782,069 present rates 201,674 0 0 4 per cent. 191,282 15 0 10,391 5 0 3| per cent. 167,372 8 0 34,301 12 0 Card, forward 127,661 13 0 365,108 3 O TABLE C.— continued. NAME OF THE COMPANY. Loan Capital. INTE Rate* BEST. Amount. Difference between the amounts now paid and 4 per cent. Diffei*ence between the amount now paid and 3£ per cent. £ s. d. £ s. d. Brot. forward 127,661 13 0 365,108 3 0 London Tilbury and £ s. d. Southend. 149,800 present rates 6,741 0 0 4 per cent. •5,992 0 0 749 0 0 3| per cent. 5,243 0 0 1,498 0 0 North London . 616,154 present rates 27,207 0 0 4 per cent. 24,644 0 0 2,563 0 0 3|r per cent. 21,563 10 0 5,643 10 0 North and Southwest- “■ ’ ' era Junction . 26,416 present rates 1,184 0 0 4 per cent. 1,056 12 0 127 8 0 3^ per cent. 924 11 0 259 9 0 Metropolitan . 547,435 present rates 26,955 10 0 4 per cent. 21,897 8 0 > 5,058 2 0 3| per cent. 19,160 4 0 7,795 5 0 Midland . 5,493,135 present rates 224,605 10 0 4 per cent. 219,725 8 0 4,880 2 0 3| per cent. 192,259 14 0 32,345 15 0 South Eastern . 4,140,907 present rates 179,874 10 0 4 per cent. 165,636 5 0 14,238 5 0 3£ per cent. 144,931 14 0 134,942 16 0 Victoria Station. 80,950 present rates 3,494 10 0 4 per cent. 3,238 0 0 256 10 0 3? per cent. 2,833 5 0 661 5 0 West London Exten¬ sion . 123,000 present rates 6,535 0 0 4 per cent. 4,920 0 0 615 0 0 3^ per cent. 4,305 0 0 1,230 0 0 £ 156,149 0 0 449,484 3 0 These tables show the state of the capitals of the several companies to which they refer at the end of the year 1864,, at the present time, October, 1866, they are in all proba- bility much heavier in each case. The return for 1865 not j having yet been published. Parliament, as a security to the public in lending their money to railway companies, has established a regulation that the companies shall only be allowed to raise borrowed capital to the extent of one-third of their authorised share capital, and shall not have power to raise any portion of their loan capital until they have raised and expended upon their undertaking one-lialf of the authorised share capital; but as this provision has been so frequently violated of late, and apparently with impunity, the public are very naturally dis¬ inclined to lend the companies more money on any terms. Railway companies have two methods of raising bor¬ rowed capital, one by debenture stock and the other by debenture bonds, both having priority (principal and interest) over all the share capital of the company, whether ordinary or preference. Debenture stock is money borrowed in irregular sums without any express condition as to its being returned at a certain time, but with power on the part of the company to pay it off after notice if it "should ever be in a position to do so; but as this never happens, the stock is, in effect, as permanent an investment as the share capital itself, and when once raised the company have no further trouble about it. For this reason it is much to a company’s advantage to take up all its loan capital as debenture stock, but as that can only be done when the line is at work earning a dividend on its share capital while a considerable portion of the amount has, in the majority of cases, to be raised long before the line is opened, when it is impossible to tell whether the 16 line will be successful or not, it follows of necessity that all loan capital must, in the first instance, be raised on bonds. Bonds, on the contrary, are certain fixed sums borrowed for specified terms of three, five, or seven years, and have to be paid off as these terms expire, when others are issued to supply their place. These renewals, or paying off and reborrowing, are a constant source of vexation, trouble and expense to the companies in every conceivable way. For instance, it may happen that bonds to a large amount, upon which a company has been paying say 4 and 5 per cent, fall due at an unfavourable state of the money market, and cannot be renewed under 6 or 7 per cent., thus entailing upon the company a heavy additional burden for several years, notwithstanding the fact that the company’s affairs may be at the time the bonds are renewed in a far more favourable condition than they were when the bonds were originally granted. Again, with respect to bonds, there is another and more serious expense on renewals to which, at the present time it may be especially desirable to direct attention, that is, 66 If a company should have a large amount of bonds falling due at any particular date, and no available funds for taking them up when due, it must either borrow money from its bankers, or issue fresh bonds, and dispose of them in the market, to raise the funds required for this purpose, and as it is often a long time before a sufficient amount can be raised in this way, the operation has to be commenced from three to six months before the money is wanted, and the company to pay interest upon the new as well as the old bonds between the time of the new bonds being taken up and the old, for which they are to be substituted, falling due. When a company has raised loan capital to the full extent authorised by its special Act, it is illegal for that company to 17 borrow any more, either by cash or bonds, even though it were only to take up other bonds falling due, and thus a com¬ pany, under such circumstances, having a number of bonds coming due, would, if it acted up to the strict letter of the law, be unable to meet its engagements ; but in practice the legal restriction is disregarded. Bonds in excess of the powers are issued to furnish the means for taking up those falling due, which, when redeemed, are cancelled, but for a time both old and new are in existence together, although the new are for that time beyond all question illegal. All these operations are a source of endless expense to the companies, and in addition to these there are numerous other expenses to pay at every renewal, such as commission, broker- / age, discount, stamps, advertisements, stationery, professional charges, &c., together forming a very large item in all rail¬ way accounts. It is due to the public that when they lend their money to railway companies on terms settled by Act of Parliament they should have some security that those terms are not wantonly violated, and to the companies that, so far as is con¬ sistent with this security, they should be relieved of these vexatious and costly proceedings. At first view, it will doubtless appear visionary to suppose that railway companies could borrow money at anything like the same rate as Government, and under the present system of borrowing there is no doubt but that it would be so. We have therefore to consider whether, if some better system were adopted, satisfactory to the public, there might not be a nearer approach to it. 2 18 With this view it is proposed :— That a few of the chief companies in the first instance— say those having their chief offices in London, and whose financial condition is unquestionable—should form among themselves A Railway Association, and apply to Parliament for the necessary powers to give effect to the following proposals, with permission to take in any other company wishing to join the association here¬ after without having to make a special application to Parlia¬ ment for that purpose. The Act to contain a special provision that all the com¬ panies named in the association, and every other company at any time thereafter joining it, shall be jointly and severally bound for each other to the full extent of the liabilities of the association also. That when a Company has expended the whole of its authorised share capital upon its undertaking, and is paying a dividend upon its ordinary share capital, the regulation limiting the borrowed capital to one third only of share capital should be amended, and under certain regula¬ tions extended to one half. That for the purpose of redeeming preference shares, or buying up any fixed charges or making extensions within their own districts, the companies might raise further borrowed capital until it amounted to one half of their share capital; but on the express condition that every case be submitted to the association for its approval before it is entered upon. The several companies to elect representatives in pro¬ portion to their respective stakes in the association, to settle preliminary proceedings, and put the Act in operation. These representatives to establish an office at some con¬ venient and central place in the City, as near to the Bank 19 and Stock Exchange as possible, and transact all the business of the assocation at that office, not at the office of any of the companies. The accounts of the several companies in the Association to be thoroughly examined by some competent and inde¬ pendent persons, so as to have a clear reliable statement of the financial condition of each company to commence with. Upon this being settled, each of the companies to execute a mortgage to the association for the whole amount of its Debenture Stock and Bonds, with the usual powers to foreclose in the event of its being at any time in default. The association then to raise by contract or otherwise, on the best terms they can, and upon the joint security of all its own members, a new loan sufficient to pay off all their Debenture Stock and Bonds. When the new loan or part of it has been raised, and the Act fairly put in operation, the association to be legally con¬ stituted in the following manner :— The Companies, according to their several proportions of the debt, to elect a certain number of members out of the general body of proprietors to represent their interests. The stockholders to elect an equal number out of their general body to represent them. These representatives to constitute the association and the governing pow r er —without authority to delegate it to others, —to be in their hands. The representatives to elect and pay some of its own members to act as an executive committee to see that the instructions of the governing power are never departed from. 20 The new loan to be raised as stock, and be called “ The Railway Consolidated Debt Stock,” or some other appropriate title. The stock to be offered in the first instance to capitalists in the same way as a Government loan. The capitalists undertaking to furnish from time to time the sums required, to take up the bonds as they fall due, and as a security for the funds being applied for the redemption of bonds, - and for no other purpose, the bonds to be taken up by the capitalists themselves at their own offices, cancelled and sent into the central office day by day. The association then to grant stock for the amount in such names and sums as the capitalists may require. Certificates (for reasons hereafter explained) to be given to each separate holder. The certificate to show the amount of stock to which the holder is entitled, the time when the in¬ terest is payable, and to have on some conspicuous part of it a notice that no transfer can be made at any time without the certificate being produced, and that it must be given up on the stock being transferred into another name, when a fresh certificate will be issued to the new holder. The stock to be offered to the public at a higher rate of interest than that on Consols, say, instead of 3 per cent., the whole stock to bear the same rate of interest, and be divided into two equal parts, the dividends on one part to be paid at Lady Day and Michaelmas, and on the other at Mid¬ summer and Christmas, so that purchasers by dividing their capital and investing in each part may receive their interest quarterly instead of half-yearly, if they desire it. When all the loans of the several companies have been exchanged for the consolidated stock, the proportion of 21 the stock due from each company to be entered in the company’s own books in one sum as due from the company to the association, and the interest paid to the association in like manner. The companies individually from that time to have no further transactions with the separate holders of the stock, all their powers to borrow money from individuals to absolutely cease and determine, and all future loans required by any of the companies, whether for the completion of existing powers or the exercise of new, to be made through the association. The present price of the 3 per cent. Consols is 89; at this rate, if the interest were 3^ instead of 3, the price would be £103. 16s. 8d. It will be seen by the summary to Table B, that a large proportion of the debts of the companies before referred to, viz., 25 million out of 58, has even under the existing arrangements, bad as they unquestionably are, been raised at 4 per cent., which it is to be presumed has been done at par, and the interest upon the whole only averages £4. 5s. 3fd. per cent., as shown at Table D below. Bearing these facts in mind together with the fact that the money will not be required for any fresh investment to execute new works that might prove a failure, but simply to relieve the same amount of money already invested in the undertakings for which it is required ; that a share capital of three times the amount of the loan as well as the loan itself has been invested in those undertakings ; that the whole of this investment is liable for the repayment of the loan principal and interest; and taking also into account the im¬ proved security; it does not appear unreasonable to expect that the amount might be raised either at par or at a moderate discount on the terms proposed, viz., 3| per cent. 22 TABLE D. The following Table shows the Loan Capital of each Company, with the total amount of interest thereon at the present rates; the average rate of interest in each case, and the average upon the whole; also the difference between the present rates and 3J per cent. : — NAME OF THE COMPANY. Loan Capital. Amount of interest at present rates. Average per cent. Crystal Palace and South London £ £ s. £ s. d. Junction Bail way . 224,540 244,773 0 5 10 0 Great Eastern Bail way ... ... 5,597,811 157,515 0 4 5 7i Great Northern. 3,846,549 12,353 3 4 1 10J Great Western . 13,276,449 589,686 0 4 8 9f London and Blackwall . 462,740 20,274 0 4 7 7J London Brighton and South Coast 3,045,916 124,078 10 4 1 5J London and North Western 16,253,164 676,877 10 4 3 2 London arid South Western 4,782,069 201,674 0 4 4 4 London Tilbury and Southend ... 149,800 6,741 0 4 10 0 North London . 616,154 27,207 0 4 8 3| North & South Western Junction 26,416 1,184 0 4 9 8i Metropolitan . 547,435 26,955 10 4 18 51 Midland . 5,493,135 224,605 10 4 1 9i South Eastern ... . 4,140,907 179,874 10 4 6 10* Victoria Station ...* .. 80,950 3,494 10 4 6 4| West London Extension . 123,000 5,535 0 4 10 0 £ 58,667,035 2,502,828 3 4 5 3f Interest at present rates . £2,502,828 3 0 „ at 4 per cent. ... 2,346,681 8 0 -£156,146 15 0 „ at 3| „ . 2,053,346 3 0 -—- 293,335 5 0 Total £449,482 0 0 It is not however intended that the benefit to be derived from this arrangement should all be appropriated by the companies immediately, but that the amount should be ap¬ portioned between the companies and the association, and that for the first few years the companies should pay to the 23 association a higher rate of interest than the association would pay to the public* say 4 per cent, instead of 3|. The companies retaining the difference between the present rates and 4 per cent. The association the difference between 4 per cent, and 3 The saving to the companies then would be as follows:— Interest at present rates as shown at Table D... £2,502,828 3 0 The same at 4 per cent.£2,346,681 8 0 Difference in favour of the companies ... ... £156,146 15 0 The proportion to each company being as stated below : — £ s. d. Crystal Palace Junction Railway. 3,371 11 0 Great Eastern Railway. 20,860 12 0 Great Northern Railway . 3,653 0 0 Great Western Railway .. 58,628 0 0 London Blackwall . 1,764 8 0 London Brighton & South Coast Railway 2,241 18 0 London & North Western Railway. 26,750 19 0 London & South Western Railway. 10,391 5 0 London Tilbury & Southend Railway ... 749 0 0 North London Railway. 2,563 0 0 North