Ranking next to them, perhaps, are the first debenture stocks of the railway and other companies which do not come within the Trustee Act. Such a statement as this is naturally only general. Some debenture stocks of industrial and mining companies are far less sound and secure than the shares of the lowest rank of some well-established undertakings. There are mortgage debentures and debentures which carry no right of mortgage, and there are, in the case of many companies, mortgage debentures of various classes, one class carrying a first mortgage, another a second, and so on. Mortgage debentures are secured by a specific charge on certain properties definitely scheduled, and in case of default in the interest payment the Court will appoint a Receiver in respect of such properties for the protection of the mortgage debenture holders. Debentures which are not mortgage debentures are secured by a floating charge over the properties and assets of the company, and in the case of its default they rank as ordinary creditors, being entitled to proceed against the company and levy execution. The mortgage debenture and debenture stocks of a company are frequently described as its fixed charge stocks, because not only does the interest never vary in rate, but has to be paid whatever the profits of the company. In fact, debenture holders, being creditors and not shareholders, receive interest and not dividend.
These debenture stocks, like the loans issued by Governments and Municipal Corporations, may be redeemable at a specified date or after it. The approach of the redemption date naturally affects the market price. If a stock at present quoted at 95 is redeemable ten years hence at 100, the tendency of the price is, of course, to rise to the 100, and one who buys the stock at 95, in calculating what it will yield him, takes into account, of course, not only the annual interest, but the fact that he must receive, as it were, a bonus of £5 when the company buys the stock on the date of redemption. Similarly, if the stock is bought at a higher price than that at which it is redeemable at some future date, the buyer must regard the yield which it gives him as so much less, for when the date arrives he must take for the stock less than he gave for it. Some stocks are irredeemable, which means, of course, that they go on bearing the rate of interest for ever. The holder of the stock may sell it and thus get rid of the arrangement, but the company or corporation is saddled with the debt and the obligation of paying the fixed rate of interest upon it for all time. This may prove inconvenient and unprofitable if the borrower can obtain loans at a lower rate, but the only way to get rid of the burden is to make some arrangement acceptable to the stockholders. Certain of the Government stocks are redeemable at a comparatively early date, Consols themselves being redeemable in 1923, but only at the option of the Government.