Auto-Train Corp. will try to sell $8 million worth of new stock to the public rather than the $6 million offering previously planned, the Washington-based railroad revealed in a letter sent to shareholders this week.
The company's shareholders will be asked to approve the new stock issue at Auto-Train's annual meeting next Monday at the Twin Bridges Marriott in Arlington.
Company officials insisted yesterday that plans to sell new stock are moving ahead, despite a ruling by the Interstate Commerce Commission Wednesday that appeared to stand in the way of any new issue.
In a sternly worded order that ICC officials said reflected the commission's frustration with Auto-Train, the ICC criticized the company for "intolerable misuses of funds that it owes its customers."
Auto-Train has held back more than $800,000 owed to passengers who canceled reservations after paying for them, the ICC said.
"Because of Auto-Train's imprudent financial practice of using funds owed to the public, we are unable to find that the issuance of any additional securities by the company is compatable with the public interest, except under conditions that will ensure prompt payment of the company's debts to the public," the ICC said.
Richard A. Goldstein, Auto-Train's senior vice president and chief operating officer, said the company is now issuing refunds for canceled tickets at the rate of $5,000 to $10,000 a day.
Goldstein pointed out that the ICC order applied only to plans to issue a $3 million note to repay a loan from American Security Bank and not to the new stock offering.
ICC officials said, however, that Auto-Train executives have been warned that the same conditions will apply to the new stock offering.
ICC officials said Auto-Train executives promised last January to get the refunds to their customers, but have failed to do so. The agency issued the tough order this week after receiving complaints from customers that Auto-Train refund checks had been returned for insufficient funds.
Goldstein said, "No checks have bounced in the past three to four months" except for one or two that were returned this month because they were inadvertently sent without a signature.
He said the company hopes to get money to pay off the ticket refunds from a $3 million loan guaranteed by the economic Development Authority of the Department of Commerce, under a federal program intended to create new jobs.
The new stock will be a preferred issue, selling for $10 a share and paying an annual dividend of 9 to 12 percent, the company said.
The loan to pay off the bank, the $3 million borrowing guaranteed by EDA, and the new stock issue are key ingredients in a package intended to keep the Auto-Train running back and forth between Lorton, Va., and Sanford, Fla.
The company has lost more than $7 million in the past three years but, as Goldstein put it, business has improved, thank god" since gasoline shortages began a few months ago.