CHAPTER III 



TIMBER BONDS 



Bonds with standing timber as security were first placed on 

 the market in 1902, as a result of unsatisfactory financial con- 

 ditions in the lumber industry in the South, where lumbermen 

 were often forced to borrow from local banks to meet current 

 expenses, such as payroll and freight rates. These banks not 

 only charged high rates, but often demanded pa^Tnent when 

 the lumberman was not in position to meet his obligations 

 especially since his products were sold to parties who demanded 

 from sixty to ninety days' time. 



The rapid growth of the lumber industry required some new 

 method of financing operations which would ehminate floating 

 debts and short time loans, provide ample funds for financing 

 the operation, permit lumbermen to carry a sufficient stock of 

 lumber to meet market requirements, enable the discounting of 

 bills with resulting economy, and concentrate the indebtedness. 

 This need was met by the issuing of bonds which were first 

 confined to the South, but are now common in the West, and 

 a few issues have been floated in the eastern part of the United 

 States. 



Timber bonds require a higher margin of safety than those of 

 most public utihties because the profits on lumber are subject 

 to a greater fluctuation during industrial depressions and may 

 become so small as to jeopardize the value of the bond. They 

 have an advantage, however, over many industrial bonds in that 

 they are secured by a natural resource fast being depleted and 

 the ownership of which is rapidly being concentrated in com- 

 paratively few hands. This leads to greater stabiHty of values, 

 and timber bonds of the best class are rapidly coming into favor 

 among conservative investors, especially those who are familiar 

 with forest properties. 



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