In the summer of 1890 the SAP was constructing its Waco branch north of Lexington when it ran out of money. It defaulted on payment of $260,000 interest due July 1, and creditors moved to protect their investment. Holders of bonds worth $13 million were planning to file a bankruptcy petition in New Orleans, but President Uriah Lott arranged for the contracting firm of Johnson & Hansen, to whom the road owed $21,000, to file a petition in San Antonio. On July 14 the San Antonio court appointed as receivers SAP Vice President & General Manager B. F. Yoakum and International and Great Northern passenger agent J. S. McNamara.
IN RECEIVERS' HANDS
The Aransas Pass, as it is called for brevity, was born four years ago with nothing behind it and cactus in front of it. It has led a hand-to-mouth existence but has done an enormous business. It has built 615 miles of excellent track and penetrated the heart of the richest country in the South. Its debts are $16,000,000 and its assets something in excess of that amount. The reason alleged for the action of this morning is that floating debt holders who had secured judgments for the amounts due them intended issuing out writs of attachment and stopping every wheel on the road. . .
President Lott took the matter very coolly. He said today that nobody had ever known the road when it was not hard up; that its assets were in excess of its liabilities; that its earnings were heavy; that the largest crop Texas ever saw was waiting to be hauled; and that, if the creditors had shown a little leniency, everything would have been paid. . . The Board of Directors this evening issued a circular warning security holders against selling out. The entire management seems to hold a very stiff upper lip.
New York Times, July 15, 1890, p. 5
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| C. P. Huntington |
The plan of reorganization included new common stock, new preferred stock and new bonds to replace the original securities. A portion of the new bonds that were authorized were reserved for extensions to Llano and Austin (and for additional rolling stock as required). The Southern Pacific Co. under President C. P. Huntington ultimately acquired the common stock and guaranteed the principal and interest on the bonds. Thus the Aransas Pass fell under SP control.
With total debt of about $16 million, the fixed interest charges called for something in the neighborhood of $720,000 annually. Taxes were about $63,500, making a total of $783,500. Net earnings were not sufficient to meet the interest payments, but the SP made the deficit good. The road was profitable to the Southern Pacific by protecting important and valuable business, which the Southern Pacific could not very well afford to lose.
This table shows the gross and net earnings for 1894-1897:
| Year | Gross | Op. Exp. | Net |
|---|---|---|---|
| 1894 | 1,946,751 | 1,324,364 | 622,387 |
| 1895 | 1,971,828 | 1,416,184 | 555,644 |
| 1896 | 1,902,785 | 1,363,422 | 539,363 |
| 1897 | 2,208,418 | 1,538,688 | 689,730 |