The question as to the correct percentage of obligations secured by mortgage to the appraised value of the mortgaged property is one of much practical interest. There are many surprising variations in practice. Roughly speaking, it may be said that the highest grade issues, secured by a mortgage on land, do not exceed 50 to 60% of the appraised value of the land. The highly regarded "cedulas," for example, issued by the National Mortgage Bank of the Argentine Republic, never exceed 50% of the appraised value of the mortgaged land. In ordinary practice, a second mortgage on land should not bring the total mortgage issues above 80% of its value. A mortgage based in part on buildings and other improvements which may not be easily adapted to other uses, and are not so readily salable as land alone, cannot safely run to as high a percentage of the appraised value.

The percentages that have just been given are intended to represent an ideal - or at any rate, the most exacting standards - rather than ordinary commercial practice. The following examples picked at random from the reports of many different companies operating in various fields and carrying on various kinds of business, show provisions that have been found acceptable by some of the good banking houses:

The Montreal Light, Heat and Power Company has permission to issue 4 1/2% first mortgage bonds, to pay for improvement up to 75% of the cost of the improvements.

The Mississippi River Power Company can issue bonds in excess of $16,000,000 under its first mortgage, up to 80% of the cost of improvements.

The Powell River Company, which produces water-power, manufactures paper, etc., can issue additional bonds under its first mortgage up to not more than 50% of the actual cost of permanent extensions, additions, improvements, or acquisitions.

The Steel Company of Canada, Ltd., may issue additional bonds to the extent of 66 2/3% of the proposed value of new fixed assets.

The Taylor-Wharton Iron and Steel Company may issue its first mortgage 5's beyond $1,250,000 for permanent improvements up to 75% of their cost.

The American Ice Company may issue the balance of its real estate first and general sinking fund gold 6's, for improvements up to 75% of the cost.

The United States Lumber and Cotton Company can issue additional bonds to the extent of 50% of the cost of betterments.

The American Sales Book Company, Ltd., may put out the balance of its first sinking fund 6's, up to 80% of the cost of extensions.

Both the New York and Cuba Mail Steamship Company and the New York and Porto Rico Steamship Company are permitted to issue additional first 5's for 80% of the actual cost of new property.

The General Baking Company, incorporated in 1911, a combination of twenty large baking establishments in various large eastern cities, is permitted to issue the balance of its authorized first mortgage bonds to the extent of 70% of the cost of permanent betterments, improvements, developments, extensions, and additions, except for the purchase of stocks of other companies.

The General Pipe Line Company may issue bonds to provide 80% of the actual cost of acquisitions, additions, etc.

The International Milling Company of Minnesota may issue bonds up to 75% of the actual cost of the establishment of additional mills.

The Iroquois Iron Company may issue first gold 5's up to 60% of the cost of additions and extensions.

The Chicago Bell Telephone Company restricts its first mortgage issue to 50% of the value of its property or 60% of the value of its real estate; it may issue further bonds not to exceed 75% of the cost of additional improvements and extensions.

The Nashville Railway and Light Company may issue its authorized bonds up to 80% of the cost of improvements.

In general, manufacturing companies are supposed to preserve a margin of safety of at least 25% between the cost of improvements and the amount of bonds issued to finance these improvements. This margin may be reduced to 20% in the case of companies that have a very stable business, or may be increased to as much as 40 or 50% for companies that do not claim any especial degree of stability in their earnings.