June 25, 2002
Mr. Donald B. Prell
P. O. Box 1927
Palm Springs, California 92263-1927
Dear Don:
I read with interest your "Untold Story." It brings back a very interesting episode.
I need, however, to point out a couple of respects in which my memory differs from what you have written.
To begin with, my firm and I were never counsel to Penn Central Company or its Board. (Penn Central's counsel on this matter was Dechert, Price & Rhoads of Philadelphia.) We were counsel to a group of Noteholders separate from the one Union Bank belonged to.
Penn Central had issued two sets of notes. One set, denominated in Swiss Francs, had been issued through Ufitec, S.A., a firm owned by the Zilkha family, to various banks all located in Europe. The other set, denominated in U.S. Dollars, had been issued through Pressprich to a group that included Union Bank.
After the railroad went into Section 77 proceedings, my firm and I began to represent the Swiss Franc Noteholder group. Our objectives at that point were to (a) recover the cash that the Penn Central financing vehicle (a Netherlands Antilles corporation) was required to hold for U.S. tax purposes, and (b) refinance into some instrument that would have as much value as possible if Penn Central were ever able to pay off the notes or its stock ever regained value.
We negotiated such a refinancing. Penn Central, however, needed participation of all note holders of both groups in order to avoid the risk of being thrown into an involuntary bankruptcy--something that would have hurt the note holders as well. When it came to persuading the Dollar note holder group, however, there were two holdouts.
My memory is consistent with your account of your role in winning over the two holdouts in the Dollar group, but I am afraid you have exaggerated mine. I believe I met with you, filled you in as you say on the details of the refinancing, gave you the refinancing papers to be signed by the two holdouts, and urged you to win them over if you could. But I have no recollection of knowing of a $300,000 fund, and I did not tell you that any such fund had come from any Penn Central directors. (I think it is very unlikely that any directors made any such contribution.)
I appreciate the good work you did in dealing with the two holdouts. But the tactics for doing so did not come from me, and any funds that may have been involved did not come from my clients or from any other source known to me.
If you would like I would be happy to have a conversation in which we try to jog each other's distant memories.
Best regards,
Lloyd N. Cutler