The total railway capital of the roads of the country, as reported to the Interstate Commerce Commission for the year ending June 30, 1910, aggregated $18,417,132,238. This capitalization was at the average rate of $76,444 per mile. The capitalization represented stock to the amount of $8,113,657,380, which is 44.05% of the total capitalization. This percentage for 1910 is nearly the minimum for the period since 1890. In 1900 the maximum percentage of 50.87% was reached. The average amount of stock per mile of line for 1910 was $34,046. This value has been slowly but steadily increasing since 1890, when it was $28,194 per mile. The total issue of stock is divided into common and preferred stock, of which the preferred stock for 1910 was $1,403,488,842, which was a little over 17% of the total. Preferred stock usually carries the right to a dividend at a fixed percentage, which dividend must be paid before any dividend can be declared on the common stock. Frequently, although not always, these dividends are cumulative, which means that if for a period of one or more years the railroad is unable to pay them, the defaulted dividends constitute a lien on the road which must be paid ultimately before dividends may be paid on the common stock. This stock therefore occupies an intermediate place between a bond and the common stock. It carries with it no authorization to foreclose and sell the road in order to secure a payment of either principal or interest, but, on the other hand, the interest or dividends, although definitely limited in amount, have a priority over the payment of any dividends on the common stock.

Although the capital stock per mile of line for the whole United States has been singularly uniform for a long period of years, which shows a uniformity in practice from year to year, there is a considerable variation, as might have been expected, in the capital stock per mile of line for railroads in the various groups. For example, the capital stock per mile of road in Group II, which includes New York, Pennsylvania, New Jersey, Delaware, and Maryland, is over $62,000 per mile.* On the other hand, in Groups V and IX, which include the Gulf States, together with Kentucky and Tennessee, the capital stock is less than $20,000 per mile. This is only what might have been expected, considering the relative general Wealth of the two sections. The percentage of the capital stock to the total capitalization, however, remains more nearly uniform. The lowest percentages are likewise in Groups V and IX. This indicates that although as a matter of fact the total capitalization per mile of road is less in these two groups than in any others, the issues of capital stock are a far less proportion of the total capitalization, and that the roads have been built chiefly on the capital obtained from the issue of bonds, probably subscribed more largely by non-residents. Although nearly the same disparity is shown in these two groups, and especially so for Group IX (Texas and Louisiana), regarding a low issue in bonds per mile of road, the percentage of the bond issue to the total capital is practically normal for these two groups.

13. Funded Debt

The total funded debt, which usually is about 50% of the total capitalization, consists of ordinary Figures taken from 1904 I. C. C. report. They are still approximately relatively true. bonds, income bonds, equipment trust obligations, and miscellaneous obligations. An income bond is practically the same as preferred stock with cumulative dividends. They are issued only after ordinary bonds have been issued to as great an extent as is considered financially safe. The interest on these bonds is only payable after the interest on prior bonds has already been provided for.

13 Funded Debt EconomicsOfRailroadConstruction04 3

Fig. 4.

Another type of bond which is frequently used during the reorganization of a bankrupt property is called a convertible bond. Such bonds carry a provision at some definite basis for their conversion into stock at the option of the holder.

Equipment trust bonds are really chattel mortgages which are issued to pay for unusual expenditures in new equipment. Since the property which constitutes the security of such a mortgage has a short life and will undoubtedly become practically worthless in a comparatively short term of years, such bonds contain provision for a sinking-fund by which the principal will be returned in annual installments and become entirely repaid within the estimated period of the physical life of the equipment.

All of these special forms of bonds constitute about 20% of the total bonded indebtedness. The great bulk of the bonded indebtedness consists of the ordinary form of bond with a definite rate of interest and with the provision that, if the interest is not promptly paid, the holders of the bonds may apply to a court for the appointment of a receiver, who will be authorized to administer the road if it is considered possible that a new management might succeed in rendering the property financially solvent, or else to arrange for the sale of the road under foreclosure. A foreclosure sale may be ordered not only for the failure of the road to pay the principal at maturity, but also for failure to pay the interest when it is due. The law varies somewhat regarding the rights of bondholders, but usually a very small proportion of them, even one-tenth, may institute foreclosure proceedings.