The Richmond Virginian. (Richmond, Va.) 1910-1920, 1920-04-21
A-B-C of FINANCE
COW I.RTEBLE BONDS.
nv HAROLD n. GREENE,
Manager Bond Department. Guar
anty Trust Go. OF New York.

Convertible bonds are those which
MAY he exchanged under stipulated
conditions for the stock Of the issuing
corporation. They appeal strongly toI
investors Whp desire an assured re-
turn on ~neir investment together
with ehaRee-to increase the prtnci-
pal
Such bonds ar" usually debentutes
ar unsecured promises to paw. but
may hc secured by mortgage or col
lateral lien. In any ease, their dis
tinguishing feature is the privilege n
conversion at fixed price into $ oHk
Sometimes this privilege may be cx-
crcised a any time during the life of
the bond in many cases convcrt!hility
ceases a i named date which may he
many years prior to maturity. The
AtciSon has two issues Of convertible
bonds due l 955 which are now such
in name only, the period for CONVEX
sion having expired in 1913.
To the security of principal and in
tercSt which characterize all good
bonds convertibility adds an oppor-
tunity to share in future prosperity of
the issuing corporation by becoming
a stakeholder If the stock should
! rise to a figure which would make
such an exchange profitable. The
purchase of Well chosen convertible
bonds puts the investor in position
10 realize considerable profits with
no Epee ulative risks.
The speculative risk incidental to
stock purchases is eliminated because.
+ however low tho stock may fail, the
/ convertible bond viii at worst be
worth no less than if it did not have.
/ the conversion privilege. Convertible
/ tty does not impair it's security or de-
sitabHIty for straight investm9nt pur
/ poses; al a time whom the price of
! he stock is too low to make the con-
+ vorjibis privilege of value the bond
/ viii sell. like other bonds, on It's mer-
| its as q promise to pay principal and
/ interest on certain dates. Thus with
/ 81 Pau! common stock selling at the
4 time OF writing around SO. the L.
/ per cent. Debentures due 1882, which
| arr convertible into stock at par. are
selling at 66 Similarly Wilson & Co.
! s. due 1928 are selling at 81, all
/ though the stock into which they will
i became convertible at par next De-
/ cern Der is quoted around V3.
| While the bonds possess in this fea-
ture a safeguard against speculative
! loss. the profit holder may reap, In
/ addition to his regular installments of
| interest, may be called unlimited. as
there is theoretically no height to
! which The stock may not rise. In
| March. 1901. when Union Pacific
common was ScIElHE dfOuHu -. tHdl
company's first lien As, convertible
into common stock at par, sold on
their Investment merits at 1903.
Five years later the stock sold up to
$50 IL, and investors in these con-
vertibles were able to realize more
than so per cent profit
| That such great profits are the ex-
ception rather than the rule must be
plain, hut the history of strong rail-
lroads and other corporations shows
thai the convertible feature OF their
bonds has often proved of value to
the bondholder. Since 1908 the Atchi-
son has issued $121.655, 600 par value
Of convertible bonds, of which $102.-
$4,000 have been converted. Between
1902 and the maturity OF the later
issue in 1915. $52,94S'0o0 of Pennsyi-
+ vania deire were converted fnte
stock. Perhaps the most striking in
/ stance of consistent profits to con
vertible boridholders is provided by
the Norfolk and Western of $ss. TAO
900 par value of convertible bonds
sold by this company between 1906
land 1918. the holders had converted
by the end OF the latter year no
less than 81 per cent.
While these conversions demon
strate the value of the privilege TO the
bondholders. ii is not necessary To
convert ones bonds In order TO profit
through rise in the stock. Traders
are always eager to buy securities
which can be converted into others OF
higher price, and competition among
these dealers raises the price of con-
ruhla honda ~. the Stocka fcx which