The Richmond Virginian. (Richmond, Va.) 1910-1920, 1920-02-25

ticaliy certain. and real property OF
high and approximately fixed value.
Hence the issuance of bonds in more
common with railroads and other
public utilities, and corporations deal
Ing in certain commodities Of prime
necessity such as steel and few
iothcr metals. The nearcr the indus
try in question approaches in its bust
ness methods tho risks Of ordinary
merchandising undertakings. the
greater the difficulty ii would have IN
marketing Its bonds, and consequently
me higher the interest rate il would
be forced to offer. AT present many
businesses are being financed by stock
issues
After the rate has been Fixed upon
the issuing corporation must decide
upon the maturity as ii is called, OF
tire bonds to be offered. Securities
with maturity of ave years or less
are usually called not bonds. but notes
Notes are common during periods oil
high money rates when 1t may be rea
|sonably expected that the rates will
decrease within few years. SO, II
the current interest rate were G or
per cent. the corporation would not
care to issue twenty-year bonds ii
there were a reasonable expectancy
that the rate would decrease in q few
years. Othed factors determining the
tffF-ttfrity might be HE maturity of pre-
,vious issues, the relation of the sink :
ing fund requirements to the gross
earnings OF the business. and the gen
erai oninion as to business develop
.ments for the near future.
The remaining factor. Al nd one which
rs of immediate Importance to the IN
weston, is the security offered Mort
gage bonds are those which are back ed
by a formally executed mortgage on
tac property Of the issuing corpora
ton, If. then. the debtor fails TO meet
the obligations imposed by the bonds
either as to interest payments the
maintenance of a sinking fund if such
bonds and other Junior issues. In such
fund is called for by the terms OF
the bond or as to the payment OF the
principal when 1t is finally due. the
hord holders may take action through
the trustees under the mortgage, and
az provided in the indenture. to safe
guard their interests. There may he
Inst mortgage bonds. second mortga &c
cases the claims of the holders Of the
first mortgage bonds are satisfied frst.
and those other of the others in ro-
tation.
Not all bonds are secured by mort
cages. Debenture bonds are not so Sc
cured "A debenture being, by definition.
an unsecured promise to pay. Some
d. hentures have. however. been Sc
cured under mortgages subsequent To
their issue. and still retain the original
name They are sometimes used by
corporations which have mortgage
bonds outstanding whose terms pre-
Glide the execution OF second mort
gage. The fact that they are unse-
cured by a mortgage OF course does
not necessarily impair their value.
Just as bankers would sometimes give
one mans unsecured note preference
over the note of another amply backed
by collateral SO debenture bond,
beckcd by the pledged faith Of a pros
porous corporation, may be fully as
good, if not better. investment than
the mortgage bond Of a less fortunate
orG anization. Owners Of dehenture
boIds have the right Of action in the
event of failure to meet payments. but
their rights are second to those OF
holders of mortgage bonds,
On several occasions bonds have been