----- Original Message -----
From: "Norm Metcalf" <metcalf@attglobal.net>
To: "railspot" <railspot@yahoogroups.com>
Sent: Tuesday, July 13, 2004 10:11 PM
Subject: BN, NP, CS bonds
> For those interested I've found a decision of the U.S. 9th Circuit Court
of
> Appeals in Adams v Burlington Northern. It is at
>
http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=9th&navby=case&no=9435461
> and a parallel case involving another flock of litigants vs. CSXT
> (in case this wraps you may have to cut and paste)
> To cite a few pertinent passages:
> Circuit Judge Canby said "These cases arise from the efforts of
bondholders
> to enforce "gold clauses" in railroad bonds issued almost a century ago.
A
> gold clause requires payment of the bond's obligations in gold dollars
> valued at the time the obligation was undertaken. In 1993, Congress
> rendered such gold clauses unenforceable, 48 Stat. 112, 113 (1933), but
then
> permitted them again in 1977, 91 Stat. 1227, 1229 (1977)."
> ..."The bondholders brought a class action to force the Burlington
Northern
> Railroad Company ("Burlington Northern" or "Railroad") to pay the interest
> and principal of its gold bonds, issued in 1896 and 1921, in gold coin."
> ..."Nearly $92 million of the Northern Pacific bonds and approximately $62
> million of the Great Northern bonds remain outstanding. The bonds mature
> between January 1, 1997 and January 1, 2047. The Burlington Northern
became
> obligor on these bonds in 1970, when Great Northern and Northern Pacific
> merged into it. Both issues trade on the major exchanges, at prices
> reflecting the market's belief that the Burlington Northern will continue
to
> pay its obligations in current legal tender, rather than in gold coin of
the
> relevant period. If the method of payment were to return to gold coin,
the
> value of the bonds would increase by up to 2000 per cent."
> ..."When it reorganized to effectuate a name change and to create a
holding
> company, the Burlington Northern undertook a Supplemental Indenture under
> its new name "to authorize the unbroken continuity" of the Railroad's
> obligations to the bondholders.
> After a 1981 merger with the Colorado & Southern Railway, the Railroad
> undertook another Supplemental Indenture. The Supplemental Indenture
> subjected the former assets of Colorado & Southern to a lien that the
> Railroad's mortgage trustee had been required to maintain on certain
blocks
> of stock in order to secure payment on the bonds. The Railroad wanted to
> free the stock from the lien so that it could cancel the stock. The
> Railroad issued several other Supplemental Indentures, for the same
purpose,
> after other subsequent mergers. None of the Supplemental Indentures
created
> new debt."
> [There follows quite a bit of material on laws and cases pertinent to
> the legality of being paid in gold.]
> ..."The effect of the 1985 statute is to permit the Burlington
Northern
> to make payment in gold coins, if it wishes to, but its debts are
discharged
> if it pays in any legal tender."
> The entire rendering is 10 pages long.
> I suspect that the ex-DTFW went to the FWD because of the above
> complications.
> Norm Metcalf, Boulder CO
>
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