New Money

Buried in the verbose columns of the venerable Commercial & Financial Chronicle a few weeks ago was a significant little Recovery fact. In June the total volume of corporate financing in the U. S. was divided between 1) refunding: $149,000,000 and 2) fresh capital: $269,000,000. U. S. Business had asked for more new money than refunding money. Only in isolated instances since large-scale corporate financing was resumed early in 1935 has this happened. In each of the five preceding months refunding ran ahead of new capital, leaving figures for the first half of 1937 in the same relationship ($932,000,000 of refunding, $795,000,000 of new capital). This time it looked as if the relationship would stay reversed, the new trend continue until the market is glutted with new issues and another collapse occurs.

New money for expansion is still raised primarily by bonds. In June the total of fresh capital issues was made up of $187,000,000 in long-and short-term bonds, $61,000,000 in preferred stock, only $21,000,000 in common stock. In the same month two years ago there was no stock financing of any kind, common or preferred, refunding or new money.

Last week a half-dozen stock issues were publicly offered, nearly as many more announced. Some merely represented the marketing of blocks of stock closely held, a type of deal which will tend to multiply as prosperity increases. An example of this kind of deal was last week's offering of 25,000 common shares of Chicago Rivet & Machine Co., a tight little $1,000,000 concern which dutifully recorded in its registration statement that it was one of the respondents in anti-trust proceedings against members of the Institute of Tubular Split & Outside Pronged Rivet Manufacturers. Sale of the stock will provide no money for the company, the shares having been purchased from the Morrissey family, big stockholders. A similar deal last week was the marketing of 49,790 common shares of Harrisburg Steel Corp., a $2,000,000 maker of steel couplings and steel cylinders for gases like oxygen, acetylene, helium, hydrogen.

Typical of the little company in search of fresh capital is Youngstown Steel Car Corp., which offered 55,000 shares of common stock last week through a banking group headed by Cleveland's L. J. Schultz & Co. The company's business used to consist largely of repairing and rebuilding freight cars, but since Depression has branched into trailers, truck frames, refrigerator car hatches, parts for hydraulic lifts, and a neat little sideline in old rail joint angle bars, which the company retreats and reforges until they are as good as new. Run by Youngstown's William Wilkoff, one of the founders of Youngstown Sheet & Tube, the company has about $1,300,000 in assets, needs cash to pay off some notes and to increase working capital so it can handle bigger orders in the railway car division, which also manufactures new cars.

Other companies offering stock last week for the dual purpose of refunding and increasing working capital included Chicago Pneumatic Tool (70,000 shares of convertible prior preferred) and California's Food Machinery Corp. (40,000 shares of convertible preferred). Little Seaboard Finance Corp. went to market with 20,000 shares of convertible preferred to expand its small-loan and installment paper business in Virginia, Tennessee and Georgia.

Were it not for the Federal tax on undistributed earnings some of the present need for new working capital would be supplied from earnings. As it is, the plowing back of capital is a high-priced luxury. Biggest seeker of working capital last week was Manhattan's R. H. Macy & Co. Feeling that it was smart to be thrifty about the undistributed profits tax. President Percy Straus persuaded his directors to authorize an offering of rights to Macy's stockholders in the ratio of one new share for every ten now held, at a price to be announced. Declared the Macy directors in a statement which might have been improved by Macy's copy department: "It is prudent to raise additional capital at this time to provide against contingencies calling for greater working capital and to provide against a reduction of its cash funds, which assuming a reasonable dividend policy, it expects would otherwise take place over the next year, due to increased working capital requirements resulting from a general expansion of the corporation's volume of business."

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