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Investigation of Freight Rates and Passenger Fares by Direction of the Legislature of 1911. (Acts of 1911, Chapter 196, Section 1); Brief of the ... Before the Public Service Commission, State - Softcover
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This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1912. Excerpt: ... In the second place there is a misunderstanding as to the effect of issuing stocks or bonds at less than the par value. If, for instance, a railroad is projected, the returns from which are uncertain, securities must be issued in one of two ways, either by bonds bearing a high rate of interest to compensate for the risk, or by carrying a moderate rate of interest with a bonus of stock, or with stock sold at much less than the par value. The issue of bonds at a high rate is objectionable from two points of view. In the first place the issuance of stock is made difficult and can be issued only at a very great discount from par; and secondly, a large amount of fixed charges is imposed upon the property. If these fixed charges cannot be earned, reorganization is necessary. If, therefore, bonds are issued at moderate rate, with a bonus of stock, the fixed charges are reduced and the investors take the chance of success of the enterprise. Of course, there are cases where an excessive amount of stock is thus issued, and this is objectionable. But up to the point of floating the bonds and issuing of stock as a bonus it is justified from every point of view. Fortunately, however, we are not faced with this problem in connection with the issuance of securities by the Boston and Maine Railroad and its leased lines. In the first place, the stock of the Boston and Maine Railroad, under the rigid capitalization laws of the states through which the railroad runs, has been issued at prices running from par to 190, the average price being about $144. The bonds have on the average been issued at about par, the average interest being 4.05% (Record, p. 969, testimony of W. J. Hobbs.) An attempt has been made in this hearing to show a wrongful issue of securities in the case ...
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