837.51 Chase National Bank/97
The Ambassador in Cuba (Welles) to the Acting Secretary of State
[Received July 3.]
Sir: I have the honor to submit the following synopsis of the terms of the contract entered into on June 27, 1933, between the Cuban Government and the Chase National Bank of the City of New York for the extension of the $20,000,000 Bankers’ Credit and the coordination of interest and maturity payments on this and other Public Works obligations.
In accordance with the contract, the Cuban Government will continue to deposit with the bank on the first and sixteenth days of each month 90 percent of all Special Public Works revenues collected after June 30, 1933. The funds so deposited will, beginning July 1, 1933, and up to June 30, 1935, be applied to the following obligations in the order named:
- A.
- —To the payment of principal and interest of $1,250,000 Public Works Serial Certificates due June 30, 1935, which the Chase National Bank has agreed to take off the hands of the public and retain in its portfolio until revenues deposited with the bank are sufficient to permit their retirement.
- B.
- —To interest on the $40,000,000 issue of Public Works Gold Bonds.
- C.
- —To interest on the $20,000,000 Bankers’ Credit.
- D.
- —To interest on the $20,000,000 Treasury Gold Obligations (Contractors’ Credit).
- E.
- —Any balance to be applied toward amortization of the $20,000,000 Bankers’ Credit.
In addition, the Cuban Government agrees to give the bank an option which will expire on June 30, 1935, to purchase at 90 per cent of their par value a sufficient amount of the $40,000,000 unissued Public Works Gold Bonds (now in the Treasury as collateral for the Bankers’ Credit) to retire the amount of the principal of the bank credit together with accrued interest thereon. This option is subject to the right of the Government to sell on ten days notice to any other party, at a price not less than 90 per cent of their par value, a sufficient amount of these collateral bonds to pay the Bankers’ Credit. As a result of this option, $22,223,000 of these unissued bonds will be signed, executed and placed in custody with the National City Bank of New York at once. If by July 1, 1935, the bank should not have exercised its option or the Government should not have made use of the right to sell these $22,223,000 Public Works Bonds, they will be cancelled. The remaining $17,777,000 of the $40,000,000 unissued Public Works Bonds will be cancelled at once.
[Page 577]After June 30, 1935, and until the remaining obligations have been fully paid, the Public Works revenues deposited with the Chase National Bank will be applied in the following order:
- A.
- —To interest and sinking fund payments of the $40,000,000 Public Works Gold Bonds.
- B.
- —Interest on the $20,000,000 Bankers’ Credit.
- C.
- —Interest on the $20,000,000 Treasury Obligations.
- D.
- —The balance to be applied toward amortizing the $20,000,000 Bankers’ Credit.
In order that beginning July 1, 1935, at least $1,000,000 of the Bankers’ Credit may be retired each year, up to that amount will be appropriated for this purpose in the Regular Budget if Special Public Works revenues are inadequate.
As a result of this contract the $20,000,000 Bankers’ Credit is automatically extended to a date not later than 1945, while the Gold Treasury Obligations which were issued to mature on June 30, 1935, will be extended or exchanged for new obligations to mature in 1950. The Government will eventually bring out refunding bonds which will carry the 1950 maturity date and it appears under the terms of the contract that payment of the five semi-annual interest coupons due June 30, 1933, will be made contingent on holders of these Treasury Obligations presenting them for exchange.
The contract further provides that in case the Chase Bank exercises the aforementioned option to purchase a sufficient amount of the Public Works Bonds, now deposited as collateral for the $20,000,000 Bankers’ Credit, to retire this Credit, the Government will include in its general budget, beginning with the date on which the option is exercised, the sum of $1,100,000 to cover interest payments on the $20,000,000 Treasury Obligations provided the proceeds of the Public Works revenues are not sufficient for the payment of this interest.
This contract, which it is understood, will not become binding on the bank or the Government until ratified by a two-third vote of Congress14 and until 100 per cent of the Treasury Obligations have been presented for exchange, appears to eliminate definitely any question as to the priority of the Bankers’ Credit over the Treasury Obligations. While apparently not altogether satisfactory to holders of the Treasury Obligations, the contract nevertheless serves to clarify the situation. It removes any possibility of the bank foreclosing on the $20,000,000 Bankers’ Credit, which is past due and demandable, and fixes interest and maturity dates on all Public Works Obligations in a way that does not appear to be too onerous on the Government.
Respectfully yours,
- Law of July 5, 1933, approving the contract, was published; in the Gaceta Oficial, July 6, 1933.↩