Pitfalls of Timber Bond Issues 551 



ket, no matter what the condition may be, in order to meet the 

 charges for interest and principal, is poorly financed. Thus it is 

 a fair conclusion that no bond issue should be burdened with 

 maturities or sinking fund provisions such as to force an un- 

 economical marketing of the product securing the mortgage. Too 

 many issues have been put out in such form, and the market has 

 been glutted with an oversupply of lumber, largely because bond 

 houses, with the idea of increasing the salability of the issues, 

 have wrongly financed them as above suggested. 



Serial bond issues are desirable upon tracts that are being cut 

 ofif, although a straight long term mortgage may be more desirable 

 upon properties that are not being lumbered, but, in the latter 

 case, it must be provided that in case lumbering begins, bond re- 

 demptions shall also begin or a sinking fund become operative 

 proportionate to the depletion of the values. 



It is all too true that we are faced, probably, through the rapid 

 waste of our heritage, with a future scarcity of wood, yet that 

 may not be so imminent as to justify the placing of a sentimental 

 value upon a timber property, for it is not likely that the scar- 

 city will be so seriously felt as to materially enhance the value 

 under the mortgage during the life of the issue, for in mortgages 

 based upon all natural resources which are being exhausted, such 

 as mines, oil wells, timber lands, etc., it is a principle of finance 

 not likely to be disputed that the loan shall be such as, through 

 some plan of redemption, to all be retired considerably within the 

 estimated life of the property itself. Future values, therefore, 

 should not be seriously considered ; rather hard, bed rock worth 

 based on present and more or less recent known commerical ex- 

 perience. Of great importance is it that the last maturity shall 

 fall due while there still remains ample stumpage to protect the 

 holders. 



The ordinary sinking fund method is by a payment to the 

 Trustee of so much per thousand feet or cord of lumber marketed. 

 Thus a sinking fund itself is a movable factor, and one should not 

 be beguiled into supposing that the amount of the sinking fund, 

 as estimated by the then output of the mills, may be as great in 

 succeeding years. The better timber may, at the moment, be that 

 which is being operated, or market conditions may change. 



