The management of the M. X. Railroad Company organizes the M. P. corporation, and constructs the line from M. to P. The M. P. corporation authorizes $5,000,000 of first mortgage 5 per cent bonds. The man agement of the M. X. Railroad Company then organizes a new corporation, the M. X. Railway Company, with the same amount of stock as the M. X. Railroad Company and proceeds to authorize $30,000,000 of deben ture 42's and to make terms to have the M. X. Railway Company take over all the properties of the M. X. Railroad Company. Holders of stock in the M. X. Railroad Com pany are willing to take the stock of the M. X. Railway Company share for share, provided that it owns all the properties which they now own. In the trust deed securing the debentures the railway company agreed not to create any new lien that would come ahead of the debentures, and if it should create any new mortgage at all, that it would secure the debentures equally with any bonds issued under the mortgage. Of the $30,000,000 au thorized, $5,000,000 could be issued only on the deposit under the trust deed of the $5,000,000 first mortgage .5's authorized by the M. P. Railroad Company.
Holders of the M. X. Railroad Company X. Y. & R. Z. collateral trust 4-1-'s are willing
to accept these new debentures in place of their collateral trust securities. The new de bentures give the same income return. Though the new issue is larger than the old, it is given a stronger position in that no mortgage can be placed ahead of it. This improved position extends to the line of the M. X. To offset part of the larger amount of debentures there is the additional security of the line of the M. P. on which the debentures have virtually a first mortgage claim through the deposit of the first mortgage security of the M. P. Rail road Company. For the other $5,000,000 additional of the debenture issue the trust deed provides that they may be issued only on evidence to the trustee of additions to the capital account of the railroad for a like amount. So, all things considered, the hold ers of the collateral bonds are willing to accept the new security in place of the old, and the exchange is made. Of course, on the transfer of the property the new corporation assumed all the outstanding bonds of the old corpo ration.
(Note) The White and Kemble maps show the various liens of bond issues on the railroad systems of the United States.