Friday, November 23, 2007

the mortgage proved exceedingly worrisome

1604 & 1606 Woolen Mills Road, the Starkes-Baltimore and Harlow houses

The stockholders were impressed. Still, the faulty bulwarks had to be shored up if the mill hoped for financial stability. So they quickly authorized a mortgage of $20,000 and a $30,000 issue of preferred stock carrying a ten percent guaranteed dividend. Why this stock issue was proposed is a puzzle. Its interest rate was only slightly less than the current rate for loans; and because of the guarantee it was in one respect more insidious than loans. The preferred stock dividend would open an irreparable leak during bad years, while borrowing could be adjusted according to needs. The directors decided not to use this method. Instead, the mortgage alone was seized upon. Twenty thousand dollars worth of bonds were sold to three Charlottesville men: John Woody, Jr., N. H, Massle, and E. R. Watson. Carrying nine percent interest, the bonds were due in ten years but could be called in after five. As it turned out, the mill remained saddled with a mortgage for twenty years. In 1880 the first bonds were replaced by a new series bearing only seven percent interest. Watson, Massie, and Jefferson R. Taylor took the second issue. Before it was retired in 1894, the mortgage proved exceedingly worrisome. Even worse, the sum raised by the mortgage was too small to remove the immediate evils of an inadequate capital. Although a ten percent dividend was unwisely paid in 1874, the following year found the board seeking extensions on credits. In December, 1875, the directors were forced to sign a joint note to raise $1,000 to pay the employees! So scarce did funds remain that only two cash dividends--five percent in 1877 and six percent in 1880--could be paid between 1875 and 1881. Profits meanwhile were set aside to accumulate in a surplus fund or to be used for improvements. In 1876 the surplus account provided the base for a twenty percent increase in common stock.
--Harry Poindexter

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