at additional bonds may be issued up to 60 percent of the cost or ir value (whichever is less) of net property additions, provided at the net earnings, as defined in the indenture, are at least twice the nual interest requirements on all bonds to be outstanding after the suance of such additional bonds." Portland proposes to issue and sell $500,000 principal amount of nsecured 13⁄4 percent serial notes, at 100 percent of principal amount, nder an agreement dated June 6, 1946, between the company and wo local banks. The serial notes, to be dated uniformly as of the late of issue, will mature serially in 10 semiannual installments of 50,000 each over a 5-year period. The agreement contains no provision for the issuance of additional serial notes. The fees and expenses to be paid in connection with the proposed ssue and sale of securities have been estimated at $95,000, including $15,000 for fees of counsel for Portland. Messrs. Davis, Polk, Wardvell, Sunderland & Kiendl have been designated as independent counsel for the purchasers of the new bonds and their estimated fee of $8,000 is to be paid by the successful bidder. Because the legal work is not yet completed, it is impossible for us to judge the appropriateness of the legal fees. Accordingly, we shall reserve jurisdiction in connection therewith. Since the Public Utilities Commissioner of Oregon and the Department of Public Utilities of Washington have authorized the issuance of the notes and bonds, subject to the issuance of a supplemental order by the Public Utilities Commissioner of Oregon upon filing with him the results of competitive bidding and since the proceeds of the issue and sale are to be used solely for the purpose of financing the business of Portland we shall grant an exemption for the issue and sale of the bonds and notes from the provisions of Sections 6 (a) and 7 of the Act, subject to the condition that Portland obtain from the Public Utilities Commissioner of Oregon, prior to the consummation of the issue and sale, a certificate of authority expressly authorizing the issue of the bonds. The redemption of the present bonds of Portland will be made in accordance with the terms of such bonds and therefore does not require our approval by virtue of the provisions of Rule U-42 (b) (2). We shall, of course, reserve jurisdiction over the price to be paid to Portland for the bonds, the interest rate thereon, the redemption prices thereof, and the underwriters' spread and its allocation. Portland has requested that the 10-day period for inviting bids as provided in our Rule U-50 (b) be shortened to not less than 7 days so It should be noted that the principal amount of bonds to be issued exceeds the principal amount of bonds to be redeemed by $1,253,000. When such $1,253,000 is used for construction, it may be made the basis of bondable additions under the provisions of the indenture. that bids may be opened on July 10, 1946. The company has widely informed the financial community of the proposed financing. Under the circumstances of this case, we have concluded that we may appropriately grant the requested shortening of the 10-day period and our order will so provide. We note that the proceeds of the issue and sale of the bonds will be $1,253,000 in excess of the amount necessary to redeem the company's outstanding bonds and including the proceeds of the issue and sale of notes, such excess will be $1,753,000. This will result in an increase in the ratios of debt to total capitalization from 38.57 percent to 43.19 percent and debt to total net assets from 41.86 percent to 46.72 percent. In this connection it should be noted that the notes will be retired over the next 5 years and that the indenture securing the bonds provides for a 12 percent sinking fund. The record shows that the above-described excess will be used for construction of needed new facilities during 1946 and 1947, and that the existence of large arrearages on Portland's preferred stocks has been an impediment to any equity financing of the new construction. As of March 31, 1946, Portland had arrearages on its 7 percent and 6 percent preferred stocks of $60.43 per share and $51.79 per share, respectively. The aggregate of such arrearages totals $3,713,328. There is an obvious need for a recapitalization of the company and we would be faced with the problem of whether terms and conditions should be imposed, pursuant to Section 6 (b), in the present case designed to remedy this situation, if it were not otherwise being met. However, as noted above, the present filing itself contemplates, as a second step, a reclassification of Portland's preferred and common stocks into a single class of new common stock, and, while the application does not now set forth the company's proposal as to the allocation of such new common stock, the record indicates that the application will be appropriately amended in this respect in the near future. In these circumstances, we shall refrain from imposing further terms and conditions with respect to the proposed financing, but shall proceed without delay to institute an appropriate proceeding pursuant to Section 11 (b) (2) of the Act. An appropriate order will issue granting the application, subject to the terms and conditions contained in Rule U-24 and to the reservation of jurisdiction and the condition mentioned above. By the Commission: (Commissioners McConnaughey, Caffrey and McEntire) Commissioner Healy being absent and not participating. See footnote 5. APPENDIX A PORTLAND GAS & COKE COMPANY Balance sheet as at Mar. 31, 1946, adjusted to give effect to reclassification of plant, property, and equipment on the basis of cost to the company and pro forma giving effect to the proposed financing • Adjustments to give effect to the reclassification of plant, property and equipment at original cost, as authorized by the Public Utilities Commissioner of Oregon and the Department of Public Utilities of Washington were recorded in the accounts in May 1946. By direction of the Public Utilities Commissioner of Oregon, dated June 7, 1946 (with which the Department of Public Utilities of Washington concurred) utility plant acquisition adjustments are to be amortized over a period of not less than 15 years, beginning in 1949. The increase in cash in the net amount of $1,475,605 is accounted for as follows: Excess of assumed proceeds from sales of bonds and notes over principal amount of bonds to be redeemed. Such excess is to be used for new construction..... Less the following estimated cash disbursements for: Interest accrued on old bonds.. Prepaid interest on noncallable bonds.. Duplicate interest.. Estimated expenses to be incurred in sale of new securities.. Total estimated disbursements.. Less cash in special fund accounts.. $1,753,000 104, 510 93, 523 24, 986 95,000 318, 019 Net disbursements affecting cash account.. Net increase in cash. 40, 624 277,395 1,475, 605 NOTE.-In preparing the pro forma balance sheet, the company has assumed for illustration that the firstmortgage bonds, bearing interest at an assumed rate of 31% percent per annum will be sold at a price to the company of 100 percent of principal amount. It is further assumed for illustration that the unsecured serial notes, bearing interest at a rate of 134 percent per annum, will net the company face amount. No provision has been made in the above balance sheets for undeclared cumulative dividends at Mar. 31, 1946, in the amount of $3,262,133.60 ($60.423% per share) on the 7 percent preferred stock and $451,194.48 ($51.79 per share) on the 6-percent preferred stock. 37,952 122,429 Less reduction in taxes accrued (resulting from nonrecurring charges to be incurred in the refinancing)..---- |