Standard Oil of New Jersey last week borrowed $85,000,000 for a period of 25 years. The money will be used to retire an issue of 5% preferred stock of a subsidiary called Standard Oil Export Corp. (TIME, May 18). Only $30,000,000 worth of Standard's new bonds were offered to the public, the rest having been bought by various Rockefeller interests including the Spelman Fund, the Rockefeller Foundation and the China Medical Board. But the most notable fact about this notable financing was that Standard borrowed the money at the lowest interest rate ever paid for long-term funds by any industrial corporation in the U.S. —little more than 3%,
Even Secretary of the Treasury Morgenthau did not really better Standard's figure when he announced the terms of the Government's June financing a few days later. Upping the national debt to a new high ($32,750,000,000), Secretary Morgenthau offered $2,050,754,400 in new securities—largest Treasury operation since the 1919 Victory Liberty Loan. One-half represented exchange offers for obligations maturing in the next few months, the rest an offering for cash, largely to pay the Bonus. Reflecting the new popularity of long-term Governments, the cash offer was divided into $400,000,000 of ⅜five-year notes, $600,000,000 in 15-to-18-year bonds with a 2¾|% coupon—both record low rates for those maturities. The Treasury's apparent edge on Standard's interest rate was accounted for by the fact that Government bonds are tax free. With income taxes what they are, the net yield on Standard's bonds to a big corporate investor is only about 2.65%. What makes Standard's bonds so desirable is that there are relatively few bonds of big super-solvent industrial corporations on the market. Big institutional investors snap them up to keep their portfolios diversified.
High though it is, Standard's credit has little to do with the company's ability to borrow money at 3%. Bonds like Standard's are called "money bonds," meaning that the price and yield are determined by the state of the money market, not by the state of the borrower's credit. Government bonds are the best example of money bonds. Typical corporate money bonds are Atchison, Topeka & Santa Fe Ry. general mortgage 4s of 1995, now selling at 114; Chesapeake & Ohio general mortgage 4½'s of 1992, selling at 125; Consolidated Gas of Baltimore general mortgage 4½s of 1954, selling at 123; Bell Telephone of Pennsylvania first & refunding mortgage 5's of 1948 selling at 120. All these issues sold below par at some time during Depression. Atchison general 4's, a savings bank favorite, sold as low as 75. Yet today some of them yield less than 3%, none so much as 3½%.