Receivers' certificates are authorized by a court de cree. This decree is the document which binds them to the property and it serves the same purpose which a trust deed serves for a bond issue. The underwrit ing process is similar to that for bonds. At maturity, certificates are either paid off or, as the reorganiza tion is completed, they are exchanged for new securi ties. The supply is now exceedingly small and the market is inactive. The following quotations, as of September 6, 1916, are given thru the courtesy of Bull and Eldredge of New York City.
14. Retirement and foreclosure of may be retired in a variety of ways. They may be paid at maturity, called at dates which the original contract designates, redeemed by lot, or purchased in the open market for a sinking fund, after which they may either be kept alive or canceled.
If foreclosure takes place it may be immediate or it may be delayed for a certain period after default. The mortgage securing the second mortgage bonds of the United States Steel Corporation provides that foreclosure shall not take place until two years after default. The West Shore Railway first mortgage stipulates for a lapse of three years. Foreclosure in volves bondholders' committees, a group of men who are more or less regularly nominated, and who serve under somewhat uncertain conceptions of trusteeship. The individual bondholder delegates his rights under the foreclosure to this committee by a power of at torney.
15. What constitutes a standard the different classes of securities, bonds may be de scribed as secure as to principal, regular and low in yield, stable as to fluctuation, and in their general drift working toward lower prices and higher yields. The definition of a standard bond has been attempted by Clark, Grannis and Lawrence of New York City: A standard bond, perhaps, has never been defined ; or if it has been defined, probably it has never been twice defined in identical terms. But the characteristics of such a bond, and the conditions which tend to make it standard, are well known. Among them are these : that it should not be a new issue, nor a small issue, nor a short-term bond ; that it should be active, and firm in price without wide fluctuations ; that it should be listed on some stock exchange—preferably the New York Stock Exchange, and that the stock of the is suing Company should also be listed, and that it should be a thoroly established dividend-payer ; that it should be a coupon bond of usual form, and that it should be a legal investment for savings banks and trust funds in New York and other states having rigid laws restricting such invest ments. Not all of these characteristics are at all important
to private investors. The mere fact that they are impor tant to some institutions and investors makes them sell at a higher price.
16. Bonds and farm mortgages contrasted.—To compare the corporation bond with the farm mort gage, it may be said that the security is equal. Safe mortgaging limits in the main are safe bonding limits, except in the case of such properties as railways and public utilities, where regularity of affairs permits a percentage of fixed charges beyond that which would be prudent in strictly competitive business. The ap praisal of the security in the case of the mortgage is easy; in the case of the bond, difficult. This difficulty arises more from restricted access to data than from complexity. The bond is for the longer term, so that altho the interest rate is smaller, the rate remains longer undisturbed. Delay in the payment of inter est is rare in one case and frequent in the other. The bond comes in a denomination to suit the investor, the mortgage in one to suit the borrower. Insurance and taxes in one case are looked after by a trustee, in the other case by an agent or by the investor per sonally. The bond is more readily marketed and forms a better collateral for loans. The bond has greater potentiality of appreciation and depreciation. Its longer life gives a greater number of interest periods for which a change in the rate of discounting can affect the principal. At default the mortgage gives the greater degree of personal control and in dividual liberty, for the bondholder must act thru a bondholders' committee, and in this day of overlap ping issues it is seldom possible for a single issue to act independently of other issues. The mortgaged property is more likely to be manageable by the in vestor. It may be bid in, operated, or sold again more readily than the bonded property. Foreclosure of a mortgage may be complicated by sentimental or social considerations; the foreclosure of a corporation bond is more purely a business matter. The fore closure of mortgages is delayed by state equities ; that of bonds, by receiverships which aim to reorganize properties whose services are essential to the public welfare.