French Credit

Last week the Paris-Orleans Railroad Company sold $10,750,000 worth of 5 1/2% external sinking fund gold bonds through a banking syndicate composed of A. Iselin & Co., Brown Brothers & Co., Halsey, Stuart & Co., Hemphill, Noyes & Co. and Wood, Gundy & Co. Few financial theorists in the U. S. reflected sentimentally that this was the railroad that carried U. S. soldiers from Bordeaux or Brest to battle. But all financial theorists did reflect deeply upon that interest rate--5 1/2%. Why?

This was the first French offering since the U. S. State Department removed its ban on French industrial financing. Theorists, comparing current prices for French bonds in New York, London, Amsterdam, Basel, had guessed that French business would have to pay about 6.10% interest on new borrowings. But out came the bankers with Paris-Orleans Railroad bonds yielding only 5.75% and the public quickly devoured them. Proof was here that bankers and public have a better opinion of French credit than statisticians.

Financial historians noted further that the new bond issue (yielding 5.75%) replaced a previous issue which yielded 7.60%. Would other French issues be called and replaced by bonds at lower interest yields? Yes, in all probability. But, strangely enough, there remain only two French issues which are callable, and both of them small, one for $10,000,000 and one for $4,000,000. The rest of the $500,000,000 in French bonds owned in the U. S. are non-callable--a grievous slip on the part of the French financiers who negotiated the sale of their bonds. They did not foresee their good fortune in U. S. public favor.