Erlanger Bonds

In 1861, the Confederacy sent John Sliddell, a southern statesman from Louisiana, to the Court of Louis Napoleon III, in order to obtain diplomatic recognition by France as well as to try to enlist France as an ally against the United States. ...Sliddell spoke excellent French (his wife was the ‘queen’ of French creole society in Louisiana) and his daughter Mathilde was known throughout the South for her beauty. ...On arrival in Paris, Sliddell’s courtly manners, and attractive wife and daughter, quickly made him a Court favorite of Napoleon III. ...

Though raising funds for the Confederacy initially met with little enhusiasm in Europe, cotton was the key. With the blockade by the North of Southern ports, cotton was in very short supply in both England and France. A bond issue was offered in 1863 with a clause permitting conversion of the bonds into cotton. The total of this loan was CSA $15,000,000, but payable in Sterling (£3,000,000), French Francs (Fr75,000,000) or in cotton (120,000,000 lb = 54,432,000 kg). The exchange rate was CSA $5 = £1 = Fr25 = 40 lb of cotton. Interest was 7% per year, payable semi-annually. The conversion rate of the bond into cotton actually offered the bond-holder cotton at 12 cents or 6 pence per pound of cotton (approximately one-third of the market price). This meant that investors were immediately attracted to the issue. Indeed, the speculators looked on the bond as an option to acquire cotton at a low price, rather than as an investment in the bond for a 7% return. Cotton was desperately needed by the textile mills of France and England. The hitch, of course, was that it would be delivered in the Confederacy, with the bond-holder being responsible for shipment to Europe. ...

Frederick Erlanger, the son of Emile Erlanger (one of the most important bankers in Europe after the Rothschilds) had become infatuated with Mathilde Sliddell, with the result that the House of Erlanger agreed to take the entire bond issue at a price of 77. ... After an initial rise in price, the rumors of an imminent collapse of the CSA and the defeat of General Robert E Lee at Gettysburg caused a severe drop in the price....

--G. Haley Garrison and Richard T. Gregg, Erlanger Cotton Bonds, Scripophily (1999)