March 30, 1909

LIB

George Perry Graham (Minister of Railways and Canals)

Liberal

Mr. GRAHAM.

I have heard nothing of it except what appeared in the newspapers.

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GRAND TRUNK PACIFIC LOAN.

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Hon. W. S.@

FIELDING (Minister of Finance) moved that the House go into committee to consider the following proposed resolutions:

Resolved, that it is expedient to authorize the Governor in Council to advance by way of loan to the Grand Trunk Pacific Railway Company a sum not exceeding ten million dollars for the purpose of aiding the company in the completion of the construction of the prairie section of the western division of the National Transcontinental Railway, the sum so advanced to bear interest at the rate of four per centum per annum, payable half yearly, and to be repayable in ten years from the time the loan is made, or if advanced in instalments, then in ten years from the time the first of such instalments is so advanced; and to provide,

That such sum, whether advanced in one or several instalments, shall be advanced upon the pledge of an issue of bonds, bearing interest at the rate of four per centum per annum, payable half yearly, to be made by the company as collateral security for the payment of such sum and interest, the principal amount of the bonds received in pledge to equal the sum advanced, such bonds to be secured, subject to any prior lien or charge, by a mortgage, or deed of trust by way of mortgage, of the prairie section, and of the undertaking, equipment and property, tolls, rights and franchises of the company in respect of said section, and to be guaranteed as to the payment of the principal and interest thereof by the Grand Trunk Railway Company of Canada; the form and provisions of such mortgage and of the bonds to be secured thereby, and of the guaranty thereof by the Grand Trunk Railway Company, to be substantially, as set forth in the schedule of the Act to be founded on these resolutions;

That His Majesty, in the event of default in the payment of half-yearly interest, or in default in the payment of the principal sum advanced under the provisions of such enactment, in addition to and without prejudice to any right or remedy against the company in respect of such default, and in addition to and without prejudice to any right or remedy His Majesty may have as pledgee of the whole or any part of such bond issue, shall, for the purpose of remedy, be deemed to be the holder of such bonds and entitled to all the rights and remedies available to bondholders arising according to the terms of such mortgage when default is made in payment of interest or principal of such bonds; and that default in payment of interest on, or principal of, any advances made under the provisions of such Act, shall be deemed to be default in payment of the interest on or principal of such bonds to the amount accrued thereon according to the tenor thereof;

That the Governor in Council may, in addition to the sums now remaining unborrowed and negotiable of the loans authorized by any Act of parliament heretofore passed, raise by way of loan, in accordance with and under the provisions of that portion of chapter 24 of the Revised Statutes of Canada, 1906, relating to the public debt, and the raising

of loans authorized by parliament, such sum or sums of money not exceeding ten million dollars, as may be required for making the advances contemplated by these resolutions.

He said: Mr. Speaker, the object of this resolution i3 to authorize the government' of Canada to loan to the Grand Trunk Pacific Railway Company, upon what is deemed to be adequate security, a sum not exceeding $10,000,000 to assist the company in meeting the unexpectedly large increase in the cost of the prairie section of the railway. It should be clearly understood that this resolution does not contemplate any change whatever in the contract between the Grand Trunk Pacific Railway Company and the government. It is rather in the nature of a banking transaction. It is proposed that the government shall become the bankers of the company, to lend it this sum of money, which no doubt the company could raise, largely if not wholly, in the ordinary way in the money market, but which in present conditions it would probably be obliged to raise under circumstances involving a considerable sacrifice, which would not be to the advantage of the company, the enterprise or the Dominion at large.

The Transcontinental Railway, beginning at Moncton in New Brunswick, at a point1 of convenient connection with our Atlantic ports, runs westward to the Pacific at Prince Rupert in British Columbia, a distance approximately of 3,560 miles. The eastern division of this line, extending from Moncton to Winnipeg, is a fraction over 1,804 miles. That division is being constructed by the government through the instrumentality of the Transcontinental Railway Commissioners, and is ultimately to be leased to the Grand Trunk Pacific Railway Company. The resolution which I have the honour to present to the House does not in any way relate to the construction of that eastern division. The western division, extending from Winnipeg to Prince Rupert, a distance of 1,755 miles approximately, is being constructed by the Grand Trunk Pacific Railway Company with the assistance of the government in the way of certain guarantees. This division is divided into two sections, known respectively as the prairie section and the mountain section. The financial arrangements respecting these two sections are somewhat different, and therefore it is of importance to note the point of division between the two. As respects the prairie section, the government guarantee the funds for the company to the extent of three-fourths of the cost, provided, however, that the amount shall not exceed $13,000 per mile. In the case of the mountain section, the government guarantee the bonds of the company to the extent of three-fourths of the cost, whatever it may be. In view of this difference in the financial arrangements as to the two sections of the western division,

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CON

Robert Laird Borden (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. R. L. BORDEN.

When was that estimate made?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

At the time the mortgage was prepared-July, 1905. It was estimated for the purposes of the mortgage. There were thus available for the road the proceeds of the government guarantee, $11,908,000, and the proceeds of the Grand Trunk Railway guarantee, which realized $9,601,926.30. There was thus available for the prairie section from the two sources $21,509,926.30. This provision was equal to $23,482 per mile for the 916 miles of prairie section as ultimately defined. If the road had cost no more than $23,482 per mile there would have been no need for any further assistance.

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CON

George Eulas Foster

Conservative (1867-1942)

Mr. FOSTER.

What is the par value of what produced that $21,500,000?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

In the case of the government guarantee, it is not a question of par value. We are bound to give a guarantee which will pi educe $13,000 per mile; but in the case of the Grand Trunk Railway guaranty, they had to issue bonds and sell them for what they would brifig on the market.

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CON

George Eulas Foster

Conservative (1867-1942)

Mr. FOSTER.

What I wanted was the amount of bonds which realized those proceeds.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

ance required to complete it. The company's statement as to the cost of the road was referred to the government engineer, Mr. Col-lingwood Schreiber, and his report was ab-'tained. His estimate of the cost of the t>rairie section was somewhat larger than that of the company. The company's estimate, allowing for value of construction equipment, gives the cost per mile at $34,059. Mr. Schreiber's estimate, making the same allowance, gives $34,943 per mile. There is thus hut a slight difference per mile between the two. The balance required, according to the company's estimate, is a total of $9,688,425. The balance required, according to Mr. Schreiber's estimate, is $10,497,522. We take the loan of $10,000,000 as being substantially in accordance with what these figures show as the amount required to enable the company to finish the prairie section. The Grand Trunk Pacific Railway Company, of course, is bound to [DOT]produce the balance required over and above the guarantee of the government. While it is correct, as stated in Mr. Hays' 'letter, that reference is made to three-quarter's of the cost of the road, it is also a fact that there is a distinct limitation put upon that cost to the government, as respects the prairie section, because it is stated that the amount to be raised from the guarantee should not be more than $13,000 per mile, and, whatever may be required in excess of that, the Grand Trunk Pacific Railway Company is bound to obtain and the Grand Trunk Railway Company of Canada, the parent company, is bound to assist in raising.

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CON

Robert Laird Borden (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. R. L. BORDEN.

Before the hon. gentleman (Mr. Fielding) leaves that point, I would like to ask a question, as I have not followed with complete understanding the figures which he has just given. If he will refer to page 1 of the information brought down, he will observe that the prairie section has been financed up to the present time in this way:-

$10,335,482.91, proceeds of 3 per cent bonds guaranteed by government on account of $13,000 per mile;

$9,601,926.30, proceeds of prairie section Railway Company ;

' A ' bonds guaranteed by Grand Trunk

$7,094,044.30, advanced by Grand Trunk Railway Company;

Total, $27,031,453.51.

As well as I can understand, about $5,000,000 is required to finish the prairie section.

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LIB
CON

Robert Laird Borden (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. R. L. BORDEN.

The prairie section will cost $32,000,000, of which $27,000,000 has been provided including the advance by the Grand Trunk Railway Company.

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

It is contemplated that the Grand Trunk shall take out of this Mr. FIELDING.

the amount which it has temporarily advanced. It is the Grand Trunk's money and not the money of the Grand Trunk Pacific. I think he will find that, according to the estimates of Mr. Hays and Mr. Schreiber, which are substantially the same, the latter being a little the higher, there is need of $10,000,000 to enable the Grand Trunk Pacific to finish the prairie section. But, of course, that includes the repayment to the Grand Trunk of the amount temporarily advanced.

As I have stated, it is clear that the Grand Trunk Railway Company of Canada, the parent company, is bound to provide this money by its guarantee; the government's obligation is distinctly limited to the $13,000 a mile, and the Grand Trunk Pacific Railway Company and its parent company the Grand Trunk Railway Company, took upon themselves the risk of the increased cost of the road. That is the letter of the contract, and, if we wish to insist upon that, we can say to the Grand Trunk Pacific Company and to the Grand Trunk Railway Company of Canada: This is your obligation, you must raise the money as you find best. But while that is the letter of the law, we think it would be unfortunate if the company were forced to issue securities to raise the money at a time when, in all probability, the securities would have to be sold at a sacrifice. The Grand Trunk Pacific Railway is a new enterprise, and, like all new railway enterprises, its own particular credit is limited. The expectation is that, as in the case of other great enterprises, as time goes on and traffic develops, it will have a credit of its own. But every such enterprise has but little credit at the beginning and must rely upon other assistance. It is felt that, if the Grand Trunk undertake to issue these bonds themselves, they will be obliged to sell them at a considerable sacrifice. It is undoubtedly true, as stated in the letter of Mr. Hays, that, as respects securities of this character, the money market is not in a favourable condition; and if we insist that the company shall float these securities themselves, they will undoubtedly have to issue them at a price very much below par. Securities of a similar character-that is, Grand Trunk Pacific securities guaranteed by the Grand Trunk Railway Company of Canada-have recently been issued in London at a price of 90, and, if you take the charges for financing off that, I presume the result to the company was somewhat below 90. We think it would be a pity if the company should be forced to issue such securities at that price. We have faith enough in the enterprise to believe that, if the company is helped, at no distant day these securities will be worth par. And so, though the money market in England may

not give that value now, we propose to become the company's banker, to receive these bonds which they propose to issue at par value and lend them that amount at four per cent. We do not disguise from ourselves the fact that, in doing this, we are giving the company substantial help. Not, we believe, a money loss, but we are lending them the credit of the government in a manner useful to them. The securities will ultimately have to be repaid at par, but at present they would not realize par. The company will pay us four per cent. We have, in a recent transaction, paid a shade above four per cent for money, so, the statement of Mr. Hays that we might lend them our credit and not suffer loss may be open to criticism. Therefore, we admit that, in giving the company the benefit of this loan, we are taking at par a security which they could not float at par and giving them the benefit of four per cent though they themselves could not borrow at that rate, and the government has recently had to pay a little over four per cent.

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L-C

Samuel Hughes

Liberal-Conservative

Mr. HUGHES.

In the estimate of $34,000 per mile by the company and the chief engineer, does that include rolling stock and other equipment?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

No, there is a special issue of bonds for equipment.

It will be remembered that, in the early days of the Canadian Pacific Railway Company >

somewhat similar conditions arose I here were periods when, great as seemed to oe the prospect of that enterprise, the money market did not view it with great favour; and application was made to the government and the government granted assistance. That assistance helped to tide over a difficulty that the company had but after a period of years, the result showed that parliament had acted wisely in granting the aid. There were differences of opinion at that time, but, no doubt, looking back over it to-day the men who did not approve of the loan at the time would be free to admit that the loan had justified itself. The Canadian Pacific Railway Company were helped over a difficulty, the road was completed, and as soon as it was in a position to establish its traffic, its credit began to improve, and, as a matter of fact, the company repaid the loan to the government before the money came due. We have every reason to hope that that will be the experience of this new enterprise. The prairie section has been generally recognized as a profitable section. The more expensive part, the mountain section, and the more difficult sections of the eastern division, are, with all their merits, not so profitable or so promising as an investment as the prairie section. We are lending this money with a special security on the prairie section and for the purposes of

the prairie section entirely. We have every reason to believe that that section will, at a very early date, prove a profitable section, and we have an abiding faith that we will not risk seriously the credit or the money of Canada in lending this company $10,000,000 under such conditions. We get for it, first the promise to pay of the Grand Trunk Pacific Railway Company. I frankly admit that that in itself, at this moment, is not of the utmost commercial value. As I have already stated, any new railway company, in the early stages of its enterprise, would not find that its credit of that character ranked very high. We take a mortgage from the Grand Trunk Pacific upon the property. That mortgage is not one of high rank; there are several other mortgages before it and I do not attach the greatest importance to the mortgage itself as a security, although it has some value.

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CON
LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

It covers the prairie section. The whole transaction applies to the prairie section. The first mortgage on the prairie section, as on the mountain section, represents the government guarantee, so that the government already holds the first mortgage on the prairie section. There is then a second mortgage which represents the aid already given by the Grand Trunk Railway Company through its guarantee, and then there is the lien created by the statute to make provision for the equipment. All these will have priority over the new mortgage we are to take under this Act. A question was asked in the House as to the standing of this mortgage and I said at once that so far as the mortgage was concerned, it would necessarily be an inferior security.

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CON

George Eulas Foster

Conservative (1867-1942)

Mr. FOSTER.

Does this mortgage include the Grand Trunk Pacific road, its equipment and everything ?

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LIB

William Stevens Fielding (Minister of Finance and Receiver General)

Liberal

Mr. FIELDING.

Yes as respects the prairie section and also the equipment of the whole western division. The first mortgage is practically held by the government through a trust company for the government guarantee. The second is held through a trust company by the Grand Trunk Railway of Canada for its iown guarantee. Then follows the equipment lien and then will come the mortgage which we propose to take to secure this loan. Therefore so far as the mortgage is concerned, I do not Tegard the security as, at present of very great value.

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CON

Herbert Brown Ames

Conservative (1867-1942)

Mr. AMES.

This mortgage is on exactly the same things as the first two, on the property of the whole undertaking.

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March 30, 1909