This section is from the book "Problems In Private Finance", by Charles W. Gerstenberg. See also: The Private Equity Edge: How Private Equity Players and the World's Top Companies Build Value and Wealth.
1. Briefly summarize the contents of the real estate mortgage (pp. 176-182) and point out the corresponding clauses in the corporate mortgage (pp. 183-9).
2. During the life of a mortgage (pp. 176-182, 211-215), who has possession of the property?
3. Explain very briefly the promises of the mortgagor contained in Article II of the Jones-Laughlin mortgage and the possible contingencies against which these promises protect the mortgagee.
4. Who has the right to foreclose the Jones-Laughlin mortgage? (pp. 228 and 233-4.)
5. Name the mortgagor and mortgagee in each of the mortgages beginning on the following pages respectively: 176, 183, 255, 291.
6. Are the mortgages, beginning respectively on pp. 183, 255 and 291, closed end, open end, or limited open-end mortgages? (pp. 196-7,266-7,291-9.)
7. Just what does the trustee do when it authenticates an issue of bonds? (p. 192.)
8. Draw up a resolution to be used by the Board of Directors of the Jones-Laughlin Steel Company in order to procure an authentication of $3,000,000 worth of bonds, the proceeds to be used for alterations in the company's plant. Assume that only $5,000,000 par value of bonds are outstanding under the mortgage (pp. 196-7.)
9. Assume that the company has outstanding $18,000,000 of bonds secured by the Jones-Laughlin mortgage. State generally how the company can procure the authentication of bonds for the purpose of building a new plant. If any papers have to be executed state briefly the contents of such papers (pp. 197-200). Why are the requirements governing the issue of these bonds different from those governing the issue of the bonds referred to in the preceding problem?
10. Which of the restrictions mentioned in the Syllabus protect the income of the bondholders and which protect the principal?
11. Of the six restrictions named in the Syllabus, which are contained in the Jones-Laughlin mortgage?
12. Company X is formed to acquire C, and to take over Corporations A and B. It authorizes a $5,500,000 issue of bonds, with the proceeds of $2,000,000 par value of which it acquires property C. The remaining $3,500,000 of bonds are reserved to refund bonds which have been issued by corporations A and B, amounting, respectively, to $1,000,000 and $2,500,000. The mortgages securing the several issues of bonds contain "after-acquired"clauses. The X Company succeeds in refunding $500,000 par value of the A bonds and $1,500,000 of the B bonds. Company X then fails and the three properties are sold separately, bringing in $600,000, $1,000,000 and $1,900,000 for properties A, B and C respectively. What percentage of the face value of their investments would the holders of the various issues of bonds each receive? Pay no attention to expenses of foreclosure, taxes, etc.
13. In the above problem, what liens had the bondholders on each of the properties: (a) before any refunding; (b) at the time of the company's insolvency?
14. What additional provisions or covenants could you insert in the agreement securing the notes or bonds on pp. 291-298 to give the security holders greater protection, without creating a mortgage?