Voice from the Past
Chapter 14

Oh Coupon Bond!
Oh Coupon Bond!
How glad I am
That you are gone'd
Too much time of bond lawyers 20 years ago was spent on the printed bonds themselves.

First, we had to draft the bond form as part of the indenture or authorizing resolution. The first paragraph of the face of the bond had to show: (1)the name of the issuer, (2) the promise to pay, (3) the medium of payment (lawful money of the United States), (4) the principal amount of the bond, (5) the rate of interest, (6) the maturity date, (7) the place or places of payment, (8) the dates of payment of interest, (9) reference to any limitation on the source of payment, and (10) reference to any redemption provisions. Each coupon had to contain corresponding information except for the maturity date and the rate of interest borne by the underlying bond, and the promise to pay on the face of the coupon was limited by reference to the source of payment of the principal indebtedness.

Subsequent paragraphs described the nature of the source of payment of the bonds, the redemption provisions, and various covenants securing the bonds (including any right to amend the underlying documents). Then came the attestation clause showing the date of the bonds, followed by the signatures of the appropriate officials and the seal of the issuer. Fairly early in my practice, most States adopted laws permitting facsimile signatures of all but one official and facsimile seals to be printed on the State's bonds and those of its political subdivisions.

All of this seems so easy that a tenacious fifth-grader should be able to master it. But, in the fifth grade, a score of 95 of a possible hundred is excellent. In the world of municipal bonds, a score of 100 is passing.

It is the nature of numbers to be free: they do no care to be tied down in writing, so they change when you are not looking, but only randomly and unobtrusively; these changes occur particularly when you try to make the redemption schedule on the face of the bond agree with the same schedule in the indenture, and this with the same schedule in the offering statement. Also, the first interest payment date has a disturbing tendency to flit back and forth by six- month intervals. Sometimes even the words that should be fixed throughout all bond issues develop mysterious changes in their spelling. I once caught one of my partners drafting a bond form headed, "Untied States of America." No matter how much he and his client favored states' rights, I told him, that was carrying the matter too far.

Although bond counsel always checked printer's proof well before delivery, problems stll slithered in. Sometimes they required reprinting the bonds; occasionally we had to let imperfect bonds into the marketplace accompanied by a letter saying, "It's all right, anyway."

Once a city was issuing refunding bonds in a simultaneous payment and cancellation of the old bonds, which had been called for redemption. The closing date for the new bonds was the redemption date for the old. When it was too late for the printer to reprint, someone discovered that all the coupons on those bonds bearing a certain rate of interest were printed to show the wrong dollar amount. The mayor of the city was able to persuade some of the city staff to stay up all night correcting those coupons in pen and ink, so I was able to approve the bonds and they could be delivered in time to prevent a default in the city's redemption. Later I was told that the underwriters held onto those bonds until the printers came up with new sheets of correct coupons and attached them, so the coupons with the inked corrections did not get into the market. Fortunately, no one had the bad judgment to ask me whether this was legal.

Another time, bonds were being issued by a State under a law that expired on July 1 of a given year. In line with the tendency of ceilings to approach floors, the State officials did not get around to adopting the proceedings and selling the bonds until June, with a closing in the last few days of that month. The printer managed to get the wrong facsimile signatures on the faces of the bonds, a mater that was discovered only when the bonds had reached the Signature Company in New York. It was to late to get the bonds reprinted before July 1. Eventually someone managed to get the wrong signatures blacked out or covered with silver panels, and a rubber stamp made of the correct signature. I did write an "It's all right, anyway" letter on that issue for the underwriters to send copies of to any investors who expressed concern.

A few decades ago a seal salesman drove through Florida, successfully selling new seals to many of the cities in that State. Until then, most municipal seals had only words and sometimes numbers, such as the name of the city and the date of its incorporation. But this salesman, whom I never met, persuaded those cities to have some distinctive graphic designs on their seals as a matter of local pride, or something. This seemed harmless to me until I found, after an issue of bonds had been printed bearing facsimiles of the old seal, but before delivery, that the city council had adopted a nice new seal. I gave the city manager the choice of delaying delivery and getting the bonds reprinted or having the city council re-adopt the old seal and retain it until after the bonds were delivered. He chose the latter, and everything was sealed with the old seal, including the certified copy of minutes re-adopting the old seal and the certificate identifying the city's seal.

Mostly I never asked how the printers got the bonds to the Signature Company or wherever else they were going; I was happier that way, until one time when the bonds didn't show up at the Signature Company. When asked how the bonds had been shipped from Chicago, where they had been printed, the printer innocently responded, "By Greyhound Bus, of course." Evidently the driver had placed the box containing the bonds in a remote corner of the baggage compartment and neglected to deliver it to whoever was to pick it up. There was time to reprint the bonds, with green instead of yellow borders, and they were delivered on schedule. I wrote a letter for some official to send to the paying agents telling them to pay out only on bonds and coupons with green borders, not on any with yellow borders. Later, the yellow bonds were found and sent back to the printer. I insisted that they be cremated because, even though these bonds did not bear any manual signature and had not been officially delivered, the coupons appeared live and could easily deceive innocent purchasers. When I tried to observe the cremation process, I found that the printer had turned the bonds over to a bank to be cremated. That bank had a cremation facility, but, for reasons of security, would not let anyone in to observe. In any event, I did not get to watch a real bond- fire, but I did get a nice cremation certificate.