Trustee of the bankrupt Penn Central Transportation Co., the largest corporate failure in American history, yesterday proposed a compromise method for making partial payment of back taxes owed to state and local governments.
In a revised plan of reorganization, submitted to U.S. District Court Judge John P. Fullham in Philadelphia, the trustees offered to pay the local governments 20 per cent of total claims in cash on the first day of operation for a proposed new Penn Central company.
For the rest of the claims, including interest, attributable to property taken over by Consolidated Rail Corp., the local authorities would recieve notes. On claims not attributable to proverty now owned by Con-Rail, another series of notes would be issued (bearing interest and becoming payable on a current basis as a general obligation of the new firm).
Penn Central was the nation's largest railroad until it failed in mid 1970 and filed for protection of its assets under bankruptcy laws. In April 1976. Penny's major rail facilities were conveyed to ConRail, a government created and aided company designed to operate (for profit, eventually) neccessary rail lines in the Northeast and Midwest states.
The Penn Central Transportation Co. remains as a separate entity and is expected to become one of the nation's largest corporations, if a plan of reorganization is approved by creditors and the federal courts.
With a new name, not yet picked, the Penn Central firm will continue in transportation as major owner of the Pittsburgh & Lake Erie: real estate: amusement parks and oil pipelines.
Altogether, the company owes some $3.6 billion in claimed debts, much of it to large banks and life insurance comapnies. State and local governments are owed $400 million.
Originally, state and local governments were offered full payment in notes bearing 8 per cent interest and maturing in 1987. Penn Central trustee said yesterday the change was made in the "interest of fairness and equity."
Financial projections and cash forecast submitted yesterday said the amended reorganization plan is workable but "little, if any, margin exists for making the plan more generous to any particular class of claimant."
In a seprate petition to the court, Penn Central trustee have asked for permission to pay $14.2 million of property corporate and other taxes it estimates due for this year.
A number of states, including Maryland, has objected to the earlier plan of paying off back taxes - which also had included an instant payment of 50 cents on the dollar for states that didn't want to take long-term notes. Maryland is owed about $12 million in back taxes; the District is owed $1.2 million and Virginia, $795.0000.
All Penn Central securities trading has been halted to give investors time to study yesterday's court documents.