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   Chapter 19 BONDS

Up To Date Business By Various Characters: 4259

Updated: 2017-12-06 00:03


When a railroad company, or a city or any other corporation desires to borrow money it is a common practice to issue instruments of credit called bonds. A bond means something that binds. Bonds bear the same relation to the resources of a corporation that mortgages do to real estate.

Corporation bonds are issued for a period of years. They usually have coupons attached which are cut off and presented at regular intervals for the payment of interest. A bondholder of a corporation runs less risk than a stockholder, first, as to interest: the corporation is obliged to pay interest on its bonds, but may at its own pleasure pass its dividends; secondly, the bondholder is a creditor, while the stockholder of the corporation is the debtor. On the other hand, if a concern is very successful, a shareholder may receive large dividends, while the bondholder receives only the stipulated interest. A bond is evidence of debt, specifying the interest, and stating when the principal shall be paid; a certificate of stock is evidence that the owner is a part-owner in the corporation or company, not a creditor, and he has no right to regain his money except by the sale of his stock, or through the winding up of the company's business.

The name debentures is given to a form of municipal bond in common use. Nearly all the large sums of money used by States and cities for the building of State or municipal buildings, bridges, canals, water-works, etc., are raised through the issue of bonds (debentures), which are sold, usually at a price a little below par, to large financial institutions, banks, and insurance companies. Generally speaking, such bonds are good securities, and are marketable anywhere.

A private bond.

At different times the United States government has issued bonds to relieve the treasury. These bonds are absolutely safe and are always marketable. Registered bonds have the name of the buyer registered; unregistered bonds are payable to bearer. Municipal bonds are issued by cities and other municipalities to raise money for local improvements. If proper precautions are taken by buyers, mun

icipal securities may be considered among the safest and most remunerative investments.

When a new railroad enterprise is undertaken its promoters often expect to make the road not only supply the money for its construction but also give working capital in addition. This is done by the issue of mortgage bonds. Default in the payment of interest throws the road into the hands of a receiver. The securities immediately fall in value and are perhaps bought up by a syndicate of crafty speculators who are permitted to reorganise the road and its management. This is the history of many of our roads. There are exceptional cases, of course, but the investor should be familiar with the facts before buying railroad mortgages.

A bottomry bond is a kind of mortgage peculiar to shipping. It is a conveyance of the ship as security for advances made to the owner. If the ship is lost the creditor loses his money and has no claim against the owner personally. It is allowable for a loan made upon such a bond to bear any rate of interest in excess of the legal rate. A vessel arriving in a foreign port may require repairs and supplies before she can proceed farther on her voyage, and in occasions of this kind a bottomry bond is given. The owner or master pledges the keel or bottom of the ship-a part, in fact, for the whole-as security.

We have now upon the market stocks and bonds representing all conceivable kinds of property. Not only are properties of many kinds used to issue bonds upon, but many kinds of bonds are often issued upon the same property. Thus we find among our railroads not only first, second, and third mortgage bonds, but income bonds, dividend bonds, convertible bonds, consolidated bonds, redemption bonds, renewal bonds, sinking-fund bonds, collateral trust bonds, equipment bonds, etc., until they lap and overlap in seemingly endless confusion.

Receiver's certificates are issued by receivers of corporations, companies, etc., in financial difficulties, to secure operating capital; they are granted first rights upon the property and are placed above prior lien and first mortgage bonds.

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