Booms and Bogs

A favorite New Deal complaint is that the public utilities are holding back on plant expansion and equipment modernization. Since 1933 the industry has spent some $600,000,000. Critics say potential needs totaled $3,000,000,000. The utilities' argument is that the New Deal's TVA, its Public Utility Holding Company Act, its generally belligerent attitude, have made it next to impossible for utilities to float new security issues. Last week there was evidence to the contrary: investors snapped up $53,000,000 worth of utility bonds, making the month's total more than $160,000,000. But since most of these were refunding operations, the public's attitude on new capital investments was largely untested.

Between 1932 and 1935 the new capital market dried up as thoroughly as a Nebraskan wheat field during a drought-- despite the steady drop in money rates. In 1935 U. S. business resumed borrowing, but refunding, not new capital, got most of the play. The year's total was $2,267,000,000. The market's biggest year since 1930 was 1936; but again most of the new money was for refunding.

About a year ago, Wall Street underwriters foresaw another upturn. Some 135 loans, big & small, had been announced. Suddenly a double disaster occurred. A $44,000,000 issue of new Pure Oil stock attracted so little interest underwriters had to put the bulk of it in cold storage; on $48,000,000 worth of Bethlehem Steel debentures underwriters were estimated to have lost $1,725,000. Other businesses contemplating new stock and bond issues called off their plans.

This year the capital market has not strayed far from the doldrums. Its irregular booming and bogging has pretty well followed the pattern of 1937. During the last week of July not one new corporate issue was floated, whereas August--at least for public utility financing--has been Depression II's banner month. Biggest issues of August's first half: Indianapolis Power & Light, $37,500,000; Toledo Edison Co., $36,500,000; New York Steam Corp., $27,982,000; Public Service Electric & Gas, $10,000,000.

To this auspicious beginning last week were added three more favorable items. Marketed through a Halsey, Stuart syndicate were $33,000,000 of Commonwealth Edison Co. 30-year, 3 1/2% bonds, which went at a premium of 1 1/4 (offering price: 103 1/2). Equally successful was a $20,000,000 issue of Lone Star Gas Corp. 15-year, 3 1/2% debentures, which sold at a premium of 1 7/8 (formal price was 102). Week's only industrial issue was $10,000,000 in Crucible Steel 3 1/2% debentures. Like the year's two biggest industrial loans (U. S. Steel's $100,000,000 issue in June, Standard Oil's $85,000,000 issues in July), part of Crucible Steel's new money will be spent on plant improvements. All told, the week's Wall Street financing reached $72,762,000, compared to $7,940,685 the week before and $39,675,000 for 1937's corresponding week.

On file with SEC or awaiting issuance are four sizable issues proposed for sale in September: Youngstown Sheet & Tube, $30,000,000; Phillips Petroleum, $25,000,000; Atlantic Refining Co., $25,000,000; Gulf States Utilities $10,000,000. Only about half of these four borrowings are for working capital--hence industrial companies, if not utilities, are floating loans for new money. Another plain fact is that generally only top-notch companies thus far have tried to raise money and they have offered mostly senior issues. Many economists hold that there can be no noteworthy recovery in the capital market until there are buyers for second-grade securities.

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