Equipment trusts

This is fascinating since is shows how far back equipment trusts go. El Nehi is essentially right about trusts, but perhaps a bit more info would put trusts into some context. Virtually every large company leverages themselves by borrowing money, because debt is almost always cheaper than equity (stock). Equipment trusts were an early way to attach some specific collateral to the borrowing, much like your house is collateral for your mortgage. And like your mortgage being recorded along with your deed, equipment trust certificates were recorded with the ICC. Because the obligation is attached to specific equipment and recorded at the ICC,the equipment is essential to operations, and the equipment can readily be repossessed and moved to other users, trust certificates have proven to be a very safe and secure way of lending money. Even bankrupt railroads could usually use trusts to finance new equipment because the trusts provided secure access to the collateral. I don't know when equipment trusts were first used, but this certainly sounds like a very early example of something that became and remains to this day an essential part of the way railroads finance themselves.

JBWX



Edited 3 time(s). Last edit at 04/22/2014 09:41AM by John West.