817.51/1746

The Guaranty Trust Company of New York and J. & W. Seligman & Co. to the Chief of the Division of Latin American Affairs (Morgan)

513–27
Foreign Department

Dear Sir: Enclosed herewith please find copies of recent cables exchanged between the undersigned and the Manager of the National Bank of Nicaragua, Inc.38 in which the Manager of the Bank transmits the request of the President of the Republic of Nicaragua for a loan to his Government and of our response indicating our willingness to extend such a loan on certain terms and conditions as to security and otherwise, all of which are fully set forth in the enclosed memorandum. An essential one of these conditions is that the said loan shall meet with the approval of the Department of State of the United States.

In connection with this matter, permit us to point out that should the loan be consummated we propose to charge 1% commission on the maximum amount of the proposed loan, viz.—$1,000,000.—together with 6% per annum interest on such amounts as may from time to time be actually advanced and outstanding.

The undersigned J. & W. Seligman & Co. have recently sold to the public $8,000,000.–Republic of Costa Rica External Secured Sinking Fund 7% Gold Bonds on a basis yielding to the purchasers about [Page 430]7.40% per annum; also $2,500,000.–7½% Secured Sinking Fund Gold Bonds of the Department of Cauca Valley of the Republic of Colombia on a basis yielding to the purchasers about 7.90% per annum, and other loans of similar character have been marketed by the undersigned and by other banking houses on approximately similar terms.

The advance which we are now prepared to make is therefore not attractive to us by reason of the rate of interest thereon nor is the advance for the purpose of protecting any existing loan or investment, for we have no loans or investments in Nicaragua. We have, however, been actively connected for many years with the constructive work that has resulted in the rehabilitation of the currency, the regulation of the budgetary and other financial affairs of the Republic, the present method of collection of the Customs and the rehabilitation of the railroad, and, having confidence in the good faith and rectitude of the Government of that country, we are willing to do what we can to preserve the labor of many years which has yielded great benefits to Nicaragua and has been a source of pride and gratification to us, by helping the established Government tide over the present period of difficulty without inflating its currency or parting with any of its National assets at a sacrifice.

We respectfully request a formal expression from your Department as to whether or not you approve of the proposed loan.

Yours very truly,

Guaranty Trust Company of New York
R. F. Loree
, Vice President
J. & W. Seligman & Co.
[Enclosure]

Memorandum for the Department of State Covering Terms and Conditions of Proposed Loan to the Government of Nicaragua

Loan: The Guaranty Trust Company of New York and J. & W. Seligman and Co., subject to the approval of the Department of State and subsequent approval of the Congress of Nicaragua, will loan $1,000,000. to the Government of Nicaragua for one year with option of renewal for a further six months for any unpaid balance not in excess of 50% of the principal amount of the loan, for a commission of 1% and interest at 6% per annum on amounts from time to time outstanding and option on future Nicaraguan financing. Drafts to be drawn on Guaranty Trust Company of New York and/or J. & W. Seligman & Co., or both, as may eventually be determined. Interest to be charged from date of payment of each draft.

[Page 431]

Repayment: The Government of Nicaragua will guarantee the repayment of the loan with interest from the revenues produced by the new taxes, subject to prior lien of English Bonds, authorized by the Congress of Nicaragua in accordance with Law of the 21st of January, 1927; from 50% of the superavit as determined on the 30th of June and 31st of December of each year, and from such dividends as may be declared by the Ferrocarril del Pacifico de Nicaragua and the National Bank of Nicaragua.

Security: As security for this loan the Government of Nicaragua will deposit with the Guaranty Trust Company of New York and/or J. & W. Seligman and Co., or both as may be determined, the shares representing the total capital stock of the Ferrocarril del Pacifico de Nicaragua, the National Bank of Nicaragua, Inc. duly endorsed and, as a further guarantee, will obtain such resignations from the present Board of Directors of the Ferrocarril del Pacifico de Nicaragua and the National Bank of Nicaragua, Inc. as will permit the election of a majority on each Board from nominees of the Guaranty Trust Company of New York and J. & W. Seligman & Co.

Disposition of Proceeds: It is understood and shall be so ratified by the Congress of Nicaragua that the funds available from this loan shall, except for the repayment to the National Bank of Nicaragua of $300,000.—plus accrued interest due by the Government of Nicaragua, be used exclusively for the maintenance, equipment, purchase of supplies and discharge of troops on the re-establishment of order and for such other absolutely essential expenditures as may be necessary for the re-establishment of law and order in the Republic of Nicaragua and to this end the President of the Republic of Nicaragua will appoint a Commission consisting of the Minister of Finance, Manager of the National Bank of Nicaragua, Inc. and the American Resident High Commissioner, which will have absolute authority by a majority vote, always subject to the approval of the President of the Republic in each instance, to authorize disbursements of funds available under this loan, and drafts drawn to provide funds for such disbursements must bear the signatures of at least two members of the Commission and to become negotiable only on the authorization by the President.

Authorizations: Before any funds are made available to the Government of Nicaragua all the terms and conditions governing this loan, provided approval is given by the State Department, must be authorized by the Congress of Nicaragua and the Congress must further specifically authorize the Financial Agent to sign the loan contract with the bankers, and endorse the stock of the Ferrocarril del Pacifico de Nicaragua and National Bank of Nicaragua, Inc. in the name of [Page 432]the “Government of Nicaragua Minister of Finance” and deliver such stock so endorsed to the Guaranty Trust Company of New York and/or J. & W. Seligman & Co. or both as may be determined.

Guaranty Trust Company of New York
By:
R. F. Loree
, Vice President
J. & W. Seligman & Co.
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