Sunday, January 2, 2011

Back to the future with long-term bonds

The last section of this Elmira and Williamsport Railroad Company bond certificate reads :

In testimony … this bond … to be dated as of the first day of May, one thousand eight hundred and sixty three.
Although this date, 1863, does not match with the certificate’s 1960’s printing style, it makes sense because it is a 1963 replacement certificate for a bond issued in 1863.

Elmira and Williamsport Rail Road
1963 replacement certificate
Printed by the American Bank Note Company

Replacement certificate
In this posting I pretend to be Marty McFly and you are seated right next to me in my DeLorean DMC-12 time machine. We set off to the past, where we arrive safely on the day when the original bond was issued. We’re just skipping about a hundred years, so it takes us only a few seconds to get there. On that first May of 1863 heavy fighting began in the civil war battle of Chancellorsville. Don’t worry, we are located almost 200 miles further northeastward, in the offices of the Pennsylvania Railroad Company in Philadelphia.

This bond represented a lease between the road and rolling stock
of the Elmira and Williamsport Rail Road to the Northern Central Railway Company.
Printed by P.S. Duval and Son, lith. Philadelphia, 1863

In those offices we find 1140 of these bonds ready to be issued. We brought the blue 1963 replacement certificate with us. When comparing both types, we see that the sizes of the bonds are different, and so are the colors. And of course the printing house is different too. However, the texts on both certificates are amazingly similar. Actually every word in each sentence is exactly the same on both. Even the seals are identical. I learned from Terry Cox that US companies were legally bound not to change texts on replacement certificates.

The 1863 bond has an embossed seal, the 1963 replacement has a printed seal.
Both have a similar design.
Double-click to enlarge the details.

Did you say long-term ?
At this point, we look at the text more in detail and read :

.. the sum of five hundred dollars … to pay ... on the first day of October, Anno Domini, two thousand eight hundred and sixty two … This bond is … issued .. for the period of nine hundred and ninety years.

The final payment date of a loan at which point the original amount is due to be paid by the issuer, is called the maturity date or maturity. In our time, most long-term bonds issued by companies have a maturity up to thirty years. But this bond is issued for almost a 1000 years. This bond will mature in 2862, which is more than 28 generations away !  Calculation : 851 (2862-2011) divided by an average of 30 years for each generation.

Detail on the rear side of the 1963 certificate.

It is very hard to understand such a jump into the future. When we switch dates, then it is easier to grasp the idea. Suppose, the bond matured in 2011, then it would have been issued in 1012 ! Luckily, we have our DeLorean with us. Fasten your seat belts, this drive will take a little longer. 

In 1012 the world looks completely different : no trains, no automobiles, no Internet and no scripophily blogs either. Yet these times were full of events. Just to mention a few : 
  • Only a decade after Leif Ericson landed in North America, the Danish Viking king Canute the Great invades England.
  • In the Arabic world, science prospered. The Persian Alhacen writes his Book of Optics, which marks the beginning of the experimental scientific method.
A huge contrast to the world as we know it today.

Other examples of extreme long-term bonds
Our DeLorean just has enough plutonium left to bring us back to the point where we started. Today, other long maturing bonds are known by collectors. Some more examples :

The West Shore Railroad Company issued in 1886 a first mortgage bond which matures in 2361 after 476 years. The original bond is shown below, but on CoxRail, see here,  you can see the replacement certificate.

West Shore Railroad Company
Printed by the American Bank Note Company

Another example is this Toronto, Grey and Bruce Railway bond, issued in 1884 and due after 999 years in 2883 !

Toronto, Grey and Bruce Railway
Printed by the British American Bank Note Company, Montreal.

Some special maturities
The Green Bay and Western Railroad Company’s income debentures, issued in the 1890s, are bonds that mature only when the railroad is sold or reorganized. You can see them here on CoxRail.

And some bonds never mature at all because they have no maturity date. They are called annuity bonds or perpetual bonds. The most known of these are the Treasury Annuities also known as UK Consols.

The DeLorean Motor Company (DMC) was formed in 1975. Production of our DMC-12 started only in 1981 after many delays at the DMCL plant (DeLorean Motor Cars, Ltd) in Northern Ireland. DMC ended in bankruptcy in 1982.

Who knows if DMC left us any scripophily or long-term bonds ?
Franky McFly

Further references:
  • DeLorean on Wikipedia
  • Book Corporate Bonds: Structures and Analysis, by Richard S. Wilson and Franky J. Fabozzi, 1996, ISBN 1-883249-07-4, see here.

1 comment:

  1. A well written and very informative post.

    Pete Angelos