Fashionable Bonds

President Roosevelt would like to see railroads and utilities shake themselves free from a part of their burden of bonded debt. One good way, he suggested, was to establish sinking funds to retire bonds before they matured. Chicago & North Western hastily took up the Roosevelt idea. Since then, however, financial fashion has dictated a different method of achieving this same end. Faced with a large maturity in April, American Water Works & Electric lately announced a $15,000,000 issue of bonds convertible into stock. Last week New York Central announced plans for meeting its nearby maturities with a $60,000,000 bond issue also convertible into stock. Presumably most of the new bonds will be converted before they mature, thus reducing the companies' funded debt and fulfilling the President's wish.

Not by choice did Water Works and Central sweeten their new bond issues with conversion privileges. Convertible bonds are always popular with timid investors in any period of rising prices because they offer a bond's stability of principal and income together with the speculative possibilities of stock. Last week on a when-issued basis Water Works' new bonds were promptly bid up to 5% above par, Central's 17 1/2% above. Both issues are the first major financing in their respective fields since the Securities Act. Water Works' bonds carry the full civil liabilities imposed by the Act but Central as a railroad is exempted from filing a registration statement.

Central's President Williamson will take no chances with his $60,000,000 maturing debt. He will offer his stockholders the right to buy his fashionable bonds in the ratio of $1,200 worth of bonds for each 100 shares of stock. If his stockholders prove apathetic, the RFC has promised him a loan of $20,000,000./- A banking group headed by Central's old friends, J. P. Morgan & Co., has agreed to take up the rest if necessary. A long and involved deal, it will require an increase of authorized Central stock from 7,000,000 shares to 10,000,000, a change from $100 par to no par stock and the stockholders' sanction. Temporary loans were arranged to tide over the period between the maturity of old bonds and the actual sale of new. President Williamson's major problem of 1934 has been solved but heavy over his head still hang bank loans and RFC advances footing up to a total of $89,400,000.

/-Central's largest stockholder is Leonor Fresnel Loree's smallish Delaware & Hudson Co. Bought at the bottom of the 1932 market, its 500,000 shares today show a profit of more than $10,000,000. D. & H.'s holdings entitle it to subscribe to approximately $6,000,000 of Central's new bonds.

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