13. Services Of Bankers

To raise money on these various kinds of obligations, the aid of bankers is often sought. They have money of their own, and are intrusted with the money of others. They have the ears also of investors. The two classes are closely related, for it is a large and profitable part of the business of many bankers to sell bonds, stocks, and other securities, and every old banking house has a large clientage of individuals who come to them for advice concerning investments and to make purchases. It is a common practice therefore for railroad companies, when desiring a fresh supply of capital, to solicit the aid of a banking house. The terms of remuneration often consist of a commission. Sometimes a banking house will make the loan, take the bonds, and sell them on its own terms. This is an everyday thing, especially when the credit of the railroad company stands very high.

14. Direct Sales Of Bonds

It should be added that some of the larger companies, which possess the highest credit, sell their bonds directly to investors, thus dispensing with the services of a banker or middleman. And this practice is growing as the railroads become more prosperous.

15. Payment Of Loans

Lastly, how are the obligations of a railroad company paid? One of the ways is by issuing new loans, and with the proceeds paying the old ones. If a company possesses fine credit, it can generally issue a new bond at a lower rate of interest, and thus effect a considerable saving. Sometimes it will tempt the holder of bonds before their maturity to convert them into other bonds bearing a lower rate of interest, but running for a much longer period. Many an investor is tempted by the offer. He does not know what to do with his money when his bonds shall mature. The railroad company saves trouble for him by offering another loan for a Ionger period, which he gladly accepts, and then goes to sleep for five or ten years longer.

16. Sinking Funds

Another way of paying obliga-tions is to create a sinking fund which shall be adequate when the bonds mature. This is managed in various ways. Sometimes company will buy its own bonds in advance of their maturity and put them into this fund, still regarding them as alive, and taking out of its treasury enough to pay the interest as it matures, the same as though they belonged to other persons and using the interest thus paid on them as a fund to buy other bonds to put into the sinking fund, until by gradual purchases all its bonds are obtained by the time of their maturity.

17. Purchase Of Outside Bonds

Sometimes holders are unwilling to sell their securities except at a price which the issuing company is unwilling to pay. Then it buys other bonds to put into the sinking fund with a view of disposing of them near the time of the maturity of its own, and with the proceeds redeeming its own obligations.

18. Retiring Bonds

To enable the issuers to get possession of their bonds without paying premium, it is a common practice to provide, at the time of issuing them, that, after a specified period, one year, three, five, or longer, the company can draw a specified number of bonds at a stated time for redemption. All the bonds are numbered from one to the end of the series; the drawings are by lot, and consequently the holder of bond number one runs the risk of having it drawn at the first drawing, or it may run until the end of the period for which the series was issued.

19. Effect Of Reducing Obligations

It should be remembered that the reduction of the obligations of a company improves the worth of those remaining. If the first mortgage bonds are all paid, those that belong to the second class take their place and become a first lien on the property of the company covered by them; and this is likewise true of all succeeding classes of securities.