Penn Central Transportation Company – Lehman Brothers Collection – List of Deals


Penn Central Rider Car: I found a bunch of photographs from a long time ago. Some of them were from Charlie Gunn which I purchased from him at train shows in Connecticut. I have always been interested in “head end” trains, so this “rider car” really interests me. Incidentally, many of the “Connecticut Stations” photos I have were bought from Charlie.

1971 $100,000,000 trustees’ certificates

Penn Central Transportation Company filed a petition for its reorganization that was approved, and following legal steps, the court authorized the issuance of the certificates by Trustees. The certificates were to be treated as an expense of administration and received the highest lien on the Penn Central’s property and priority in payment under the Bankruptcy Act.

Penn Central was formed in a 1968 merger between the Pennsylvania Railroad and the New York Central Railroad. The ambitious conglomerate collapsed into bankruptcy two years later. The Penn Central’s collapse has been called the biggest business failure in American history. In their book The Wreck of the Penn Central, Joseph Daughen and Peter Binzen claim that 100,000 creditors and 118,000 stockholders were affected by the 1970 bankruptcy.

Both the Pennsylvania Railroad Company (PRR, “the Pennsy”) and the New York Central Railroad Company (NYC) had long histories starting in the early days of railroads. Pennsylvania Railroad was founded in 1846, eventually controlling 11,000 miles of track throughout the Northeast and the nation. The New York Central Railroad was founded in 1853 and stretched from Pennsylvania to as far as Ottawa. The companies were financed and run by robber barons like Erastus Corning, Chauncy Depew, J.P. Morgan, and Cornelius Vanderbilt, who manipulated prices and transportation to freeze out competitors and consolidate their control. Both the PRR and the NYC were highly complex companies controlling land and real estate, transportation routes of many kinds, and commodities like coal and steel. The Penn Central also incorporated the New York, New Haven, and Hartford Railroad, a fiscally unsound railroad that the Interstate Commerce Commission (ICC) required the new company to acquire and support.

The Penn Central merger germinated from a 1957 idea of the PRR’s president, James Miller Symes, to consolidate the railroad industry. PRR and NYC’s boards approved the merger in 1962. Judicial wrangling delayed the merger until 1968.

The railroad’s collapse stemmed from many business problems. Executive infighting plagued the new company. The Penn Central CFO, David Bevan, was later tried and acquitted for $4 million in embezzlement. Penn Central executives sold almost 40,000 shares of stock just before the bankruptcy. Interstate trucking and air flights were cutting into railroads’ freight and postal market. The ICC also required the Penn Central to continue running unprofitable commuter and passenger trains. Service on both passenger and freight lines was poor. Inflation crippled the company just as the 1969 winter delayed the system. Despite its $4.6 billion in assets, the new company went bankrupt on June 21, 1970.

Federal regulators reorganized Penn Central and a few smaller railroads as the Consolidated Railroad Corporation (Conrail) in 1976.

Note: There are a number of books describing the collapse of Penn Central: Joseph Daughen and Peter Binzen’s The Wreck of the Penn Central (Beard Books, 1971); Michael Gartner’s (ed.) Riding the Pennsy to Ruin (New York: Dow Jones, 1970-1971); Stephen Salsbury’s No Way to Run a Railroad (New York: McGraw Hill, 1983); and Robert Sobel’s The Fallen Colossus (New York: Weybright and Talley, 1977). A variety of Securities and Exchange Commission and Senate reports also deal with the Penn Central’s collapse.