Derailed by Bankruptcy: Life after the Reading Railroad

Derailed by Bankruptcy: Life after the Reading Railroad

Derailed by Bankruptcy: Life after the Reading Railroad

Derailed by Bankruptcy: Life after the Reading Railroad

Synopsis

What happened when the US government stopped investing in railroads and started investing in highways and air travel? By the late 1970s, six major eastern railroads had declared bankruptcy. Although he didn't like trains, Howard H. Lewis became the primary lawyer for the Reading Railroad during its legendary bankruptcy case. Here, Lewis provides a frank account of the high-intensity litigation and courtroom battles over the US government's proposal to form Conrail out of the six bankrupt railroads, which meant taking the Reading's property, leaving the railroad to prove its worth. After five grueling years, the case was ultimately settled for $186 million--three times the original offer from the US government--and Lewis became known as a champion defender of both the railroad industry and its assets.

Excerpt

Financial failure enveloped most of the rail network in the northeastern United States and adjacent territory during the first half of the 1970s. By 1973, seven companies operating a total of 25,160 route miles of line in this area were conducting business under bankruptcy law protection. Historically, most railroads that suffered bankruptcy were returned to solvency by so-called income-based reorganizations that reduced the claims of security holders to levels that could be sustained by existing and estimated future levels of revenue. However, the situation in 1973 was different. By then it had become apparent that the existing and foreseeable earnings of most if not all of the seven bankrupt companies had fallen too low to support a reorganized structure of debt and equity securities of any magnitude. Consequently, liquidation of the companies’ assets and termination of most of the rail service in the Northeast became a real threat, thus posing the specter of serious collateral negative economic consequences, locally, regionally, and nationally.

This grim scene sets the stage for attorney Howard H. Lewis’s autobiographical portrayal of his involvement with the bankruptcy proceedings of the Reading Company. As operator of 1,149 route miles of line comprising 4.5 percent of the aforementioned total of 25,160 miles, the Reading ranked third in size among its bankrupt counterparts. Although dwarfed by the 19,300-mile Penn Central Transportation Company, largest of the bankrupt carriers, the Reading served customers for . . .

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