Evening star., 1935-03-17
State and Municipal Issues
Lifted-Large Federal
Savings Foreseen.
CORPORATE REFUNDING
HELD CHEERFUL SIGN
Desire to Cut Interest and Take
Advantage of Market Trend
Dominates Action.
BY ]. G. DONLEY.

NEW YORK, March l6.-The Gov
ernment's fiscal program has turned
preponderantly to conversion, with a
two-edged purpose-to get rid of old
gold clause" obligations and make
important savings in interest charges
The program made a big step for
ward this week in the calling for
redemption of all the first Liberty
bonds, holders being offered the priv
ilege of exchanging for other obliga-
tions.
An effect Of this wholesale retire
ment. perhaps not entirely unforeseen,
was to create a broadening demand
for municipal and State bonds. This
demand grows out of their tax-ex-
emption features. The approximately
81, 100000 of first Liberty 3l2s
was the only group of outstanding
Federal obligations entirely tax ex-
empt, the various As and 4l4s into
which a portion of the earlier issue
had been converted being exempt only
from surtaXes. That tax distinction.
of course, explains why something
less than one-third of the original
3las took advantage of previous con-
version offers, which held out the
bait Of higher interest rate.
Rejecting the serious gap to be
left in the supply of tax-exempt
bonds. the demand for New York
State bonds, issued last week on a
2l2 per cent basis, was so strong i'm
mediately after the Treasury's an
nouncement that they were bid for
on a basis Of 2.25 per cent, with the
best offer 2.l0 per cent.
Corporate Refunding Operations.
Corporations, it is to be noted. have
in the last week begun to enter the
capital market in pursuance OF re-
funding plans which are patterned
after those of the Federal Govern
ment. The purpose is one and the
same-to accomplish a saving in in
terest charges by taking advantage of
the prevailing demand for mortgage
investments which has resulted in
low-yield basis. Corporation plans
have been facilitated by the new reg
istration forms, which, while they
have not removed the liabilities and
moral restraints upon the issuer i'm
posed by the securities act of 1888,
have brushed aside many of the most
annoying technical obstacles. Encour-
agement has also been found in the
willingness of Chairman Kennedy of
the S. E. G. to cooperate In every pos
sible way.
The result is that sS8.000.000 of
corporate refunding in two issues is
now under way, and Commissioner
Lands has announced that two other
large corporations are preparing to
register new bond issues which will
amount to S50,000,000 each. This
will bring the total of capital issues
in sight for the week up to S188,-
100000. The extent of the sudden
expansion of such operations will be
appreciated when comparison is made
with the total of corporate financing
for the months of January and Feb
ruary combined, estimated by the
Financial Chronical at S37.517, ,O00
Estimates are that. If all corpora
tions having callable bonds now SELL
ing at premiums were to take ad-
vantage of the existing opportunity
to reduce their fixed charges, the re-
suit would be some $500, 900 900 in re-
financing. Such operations would not
glut the securities market, for they
would not represent the raising of any
new money-merely an exchange by
investors of old securities for new.
New Financing Expected.
The most encouraging feature of
these corporate refunding operations
is that experience of the past has
always been that refinancing usually
precedes and prepares the way for
new financing which implies putting
rev capital to work in improvements
and expansion.
Announcement by the Treasury
that some S600,00O,OO0 of the gold
proflt'-all that remains unexpended
would be used to retire circulation
privilege bonds, did not come as a
great surprise. First publicity to
such a plan was given last August.
AT that time, it also was f1rst-page
news, and the same discussion ensued,
then as now, in relation to the pros
and cons of its inflationary implica-
tions. The immediate effect of the
move merely is to retire the rela-
lively small amount of national bank
notes now in circulation, to close the
door to all such issues in future
Continued on Third Page.)