Corporation bonds are of many classes, differing widely in their value
as securities. Only a few of the more important classes can be
mentioned here. FIRST MORTGAGE BONDS constitute, as the name implies,
a first lien upon the property of the company issuing them. It is
important in estimating the value of such securities to know whether
they include only the property of the corporation at the time the
bonds were issued or whether they are so worded as to include all
property owned or acquired by the corporation. Second and third
mortgage bonds are second and third liens. The interest upon second
and third mortgage bonds is paid only after the interest upon first
mortgage bonds is satisfied.
When bonds are issued to take up and put into one fund all previously
issued mortgage bonds, the new bonds are sometimes called CONSOLIDATED
MORTGAGE BONDS. Holders of previously issued bonds are not obliged to
exchange them for any new securities.
INCOME BONDS are usually secured by a mortgage on the earnings of the
corporation issuing them. Interest on such bonds must be paid before
dividends are declared to stockholders. It is customary when such
bonds are issued to set aside a percentage of the earnings as a
sinking fund to meet the bonds at maturity.
Bonds are issued against all conceivable kinds of securities. Not only
are properties of many kinds used to issue bonds upon, but many kinds
of bonds are often issued upon the same properties. This is especially
true of railways, where mortgages of various kinds often lap and
overlap in almost endless confusion.