The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-08-01
Trends
Low Cost of Money
Is Now Extended
To Stocks.
to Stocks.
by VINCENT LYONS.
Times Financial Editor

THE high cost OF living may be
u providing some anxious mo-
ments for the manager of the FAM
lily household but the low cost of
money is of distinct benefit to the
guardians Of corporations finances.
Borrowing is cheap and American
industry is taking advantage of the
occasion by stepping up to bank
windows and getting its share.
Definite proof of the cheapness
of money came to light in the last
few months as a long line of cor
porations sold new loW-coupon is
sues for the purpose of procuring
money with which to retire out
standing high-coupon Indebtedness.
AS a consequence we have witnessed
the spectacle Of 4 per cent bonds
being eagerly gobbled up by highly
receptive investment market. One
eastern utility will shortly offer
SIS. 900 .0O0 Of 81 per cent bonds.
7 y
per cent bond issues is taking place.
Each day a fresh batch of COM
panies, whose positions are regard
ed as sound enough by underwrit-
ers, Join the parade. The Secur1-
ties 81 Exchange Commission, origi-
nally regarded as an instrumental
bic barrier, is being deluged with
registrations of new issues. In the
first six months SEC reported
s665. 333. $50 of new issues filed with
it. which was almost double the
volume in the corresponding period
last year.
I OW-COST money is now en-
IL tering a new phase. Within
the last few DAYS we have found
two premier representatives. of
American business - Commercial
Credit Co. and the Loose Wiles
Biscuit Co-calling high dividend
paying preferred stocks. And,
as is the C aSe in the pond re-
financing programs of other COM
panies, the money to retire the
issues will be gained by selling new
issues of preferred stock carrying
a lower dividend rate.
Whether this trend will assume
all the proportions of movement
Is difficult to forecast. 1t is purely
a matter for the consideration of
the individual corporation with
81 or 7 per cent preferred issue
outstanding. 1t is certain, however,
that the appetite of the investment
market for obligations of sound or
CARNATIONS is still unappeased.
Watching the ambitious re-
financing program Of American in
dustry with keen anticipation is
the holder of common stocks. He
can we'll afford to stand on the
side-line and applaud with much
gusto each reduction made in fixed
charges. He realizes that the pro-
cess of pairing fixed charges en-
hances the intrinsic worth of COM
mon stocks. The money saved by
rsfinancing can either be used for
expansion, which will be reflected
in future business, or, if not used
in this manner, it will increase the
amount of earnings available for
dividends on common stocks.
WITH this in mind it is not so
w difficult to fathom the APP
probation which has taken place in
security values or the Stock EX-
change during the last two months.
AStute traders have realized that
while holders of recognized in
veStment securities will be forced to
accept lower yield on their Secur-
tiles the common stakeholder
stands to benefit for the above
mentioned reasons. Consequently,
they have been doing a lot of Selec-
tive buying for their own account.
Some people have been bemoan-
ing the fact that virtually all of the
new issues which have been offered
in the first six months of the year
have been for the purpose of re-
financing. Thus. they add. the
money borrowed by corporations
has not been new capital, but
merely a system of robbing Peter
to pay Paul. But these critics seem
to forget that in the process the
cost of the debt has been whitfield
considerably.
The procedure can very we'll be
regarded as an excellent step along
the road of sound finance. New
capital for purposes of expansion
or plant improvement can be ar
ranged more easily as a result of
refinancing. For instance all other
things being equal, a syndicate
would be more receptive toward I'M
derwriting an issue of a company
whose fixed charges averaged Az
per cent than an issue of a COM
pany whose yearly fixed charges
were So or per cent.