Show Co corporation 14 j ora lion stock arid and bond guaranty WRITTEN FOR THE MINING REVIEW during the last few years the system of guaranteeing the principal of corporation stocks has become quite common especially in the case of unknown securities such as that of a new mining 21 company desiring outside capital for development purposes the general mode of procedure is to utilize a guaranty company which is legally authorized zed to do that kind of business the corporation selling stock places part of the proceeds with the guaranty company which in return issues its promise to pay the purchase price of the stock at a certain time A well known guaranty company at los angeles which is probably the strongest firm in its line in the united states issues gold bonds of a face value equivalent to the purchase price of the stock sold maturing at the desired period the corporation selling stock buys these bonds as it sells its stock and pays for them a percentage of the proceeds which at compound interest will amount to the face value of the bonds at their maturity the corporation uses these bonds as security that it will carry out a fixed agreement with the purchasers of its stock placing them in escrow under that agreement the usual agreement consists of a promise on the part of the corporation to refund to the investor in dividends within a certain period the amount he originally paid for his stock with the proviso that it if the corporation fails to carry out the terms of the agreement the investor takes the bond if the terms of agreement are fulfilled the corporation takes the bond the guaranty company pays the face value of the bond at maturity in any case and in most cases it pays 90 per cent of its accrued value any time after its tenth anniversary thus the investor takes no chance of losing one dollar of his investment the only chance he takes is on the interest on his money if the corporation is successful the security bond reverts to its treasury thereby adding to its holdings a valuable asset if unsuccessful the corporation has had the use of the purchase price of its stock less the cost of the security bonds and further it has the satisfaction of knowing that its stockholders will be saved the amount of their investment the same system is applicable to mortgage and debenture bonds by placing a sum of money out of the proceeds of the issue with a guaranty company where at compound interest it wi hilll 11 be sufficient to pay the principal of the issue ut nl maturity the corporation does not have to worry about the payment of the the guaranty company attends to that the Inter interest cst on its issue is the only the corporation has to see to and the bondholders bond holders are secured as to that by the mortgage on the corporations holdings the investor feels doubly safe when he knows that the principal of his bonds is guaranteed by a strong guaranty company while the mort mortgage g age on the corporations holdings secure the payment of interest in some cases the guaranty company provides for the payment of interest as well as principal wid and if in that case the bonds are participating he receives his ratio of corporation profits in addition to being perfectly secure as to his principal and interest the guaranty company doing that kind of business must necessarily be strong in independent assets the amount which the corporation pays for the bonds must be placed with a trustee who invests it in sound securities which with compounded interest will be at lt least sufficient to pay the face value of the bond at maturity these securities must be beyond the control of the guaranty company itself the history of stock and bond guaranty or underwriting is hundreds of years old but in the last few years and especially since the recent expose of modern high finance methods the investing public demands some such security before putting their money into unknown securities A great many people believe that legislation ought to compel certain classes of corporations to create a sinking fund of some sort for the protection of their stockholders |