Paperless securities - not just for finance companies.

• Author: Apfel, Robert C.

Paperless securities -- not just for finance companies

Ford Motor Credit Co. and IBM Credit Corp. are among a handful of corporate issuers to respond to former SEC Chairman John S. R. Shad's encouragement to issue new debt in global book-entry form, saving the expense and hassles of physical certificates, transfer agents, paying agents, and registrars. (Other names for this paperless process are book-entry-only and full book-entry.)

Finance companies have been the first corporate issuers to embrace paperless debt because they are the most prolific issuers and the fastest to pick up on new ideas. When those with a lower issuance volume understand the ongoing benefits, like the yearly savings in paying agent fees, they surely will want to follow.

"Book-entry delivery and settlement is useful to anybody in the securities market," says Daniel F. Benton, director of trading at Salomon Brothers Inc. "The costs have got to be lower."

Consolidated Rail Corp. recently became the first nonfinance company to use global book-entry for plain vanilla notes. Global book-entry has already been used by a variety of issuers for their auction-rate preferred stock and notes. Included are AMR, CSX, GTE, Hartford Fire Insurance, Kroger, Texas Instruments, USX, Virginia Electric & Power, and Weyerhauser. Global book-entry is now being used in the burgeoning market for medium-term notes and is expected to be available to the huge commercial paper market shortly.

A trend could be developing toward paperless corporate debt, according to Craig N. Green, manager of the international treasury division at Ford Credit. "The U.S. government switched to full book-entry, as have most federal agencies and many municipal issuers. We believe book-entry corporate debt is a logical extension of this trend."

In fact, global book-entry corporate debt offering have lagged global municipal offerings by a considerable margin--there have been hundreds of the latter since the first deal in late 1982. The pioneering efforts of a leading underwriter, working with a team of consultants, was a major stimulus there. Municipal issuers have generally been pleased. Greg D. Leddy, director of finance for the Metropolitan Water District of Southern California, believes that "global book-entry issues will become even more common in municipal offerings because of substantial savings in bond printing and debt administration costs. The same kinds of savings would apply for the private sector in the case of corporate issues."

The first global book-entry corporate debt was Ford Credit's $200 million, three-year note distributed in October of 1986. Former SEC chairman Shad indicated that "Ford Credit's new issue will save [the firm] thousands of dollars of transfer and certificate printing costs over the lifer of the issue and will provide greater processing efficiencies to Ford, its investors, and securities brokers and custodians." Others will follow Ford's lead, Shad predicted.

By midyear 1988, Ford Credit...