Download (PPT, 202KB)

• Preferred Stock
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Corporate finance - Preferred stock
higher ranking) to common stock, but
subordinate to Bond (finance)|bonds in
terms of claim (or rights to their share of
the assets of the company).Drinkard, T., A
Primer On Preferred Stocks., [
http://www.investopedia.com/articles/stock
s/06/preferredstock.asp?viewed=1
Investopedia]
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Corporate finance - Preferred stock
1
Preferred stock usually carries no voting
rights,Preferred Stock ... generally carries
no voting rights unless scheduled
dividends have been omitted. – [
http://www.quantumonline.com/glossary.cf
m Quantum Online] but may carry a
dividend and may have priority over
common stock in the payment of dividends
and upon liquidation. Terms of the
preferred stock are stated in a Certificate
of Designation.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Corporate finance - Preferred stock
Similar to bonds, preferred stocks are
rated by the major credit-rating
companies. The rating for preferreds is
generally lower, since preferred dividends
do not carry the same guarantees as
interest payments from bonds and they
are junior to all creditors.Drinkard, T.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Corporate finance - Preferred stock
1
Preferred stock is a special class of shares
which may have any combination of
features not possessed by common stock.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Corporate finance - Preferred stock
1
The following features are usually
associated with preferred stock:.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Working capital management - Preferred stock
Preferred stock usually carries no
voting rights,Preferred Stock ...
generally carries no voting rights
unless scheduled dividends have been
omitted. –
[http://www.quantumonline.com/glossa
ry.cfm Quantum Online] but may carry
a dividend and may have priority over
common stock in the payment of
dividends and upon liquidation. Terms
of the preferred stock are stated in a
Certificate of Designation.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock
Terms of the
preferred stock are
described in the
articles of
association
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Preference in dividends
In general, preferred stock has
preference in dividend payments. The
preference does not assure the
payment of dividends, but the
company must pay the stated
dividends on preferred stock before
paying any dividends on common
stock.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Preference in dividends
preferred stock; any
dividends passed are lost
if not declared..
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Other features or rights
1
* Preferred stock may or may not have a
fixed liquidation value (or par value)
associated with it. This represents the
amount of capital which was contributed to
the corporation when the shares were first
issued.[https://www.delawareinc.com/101/i
ndex.cfm?pageid=10071 Harvard
Business Services, Inc.] Accessed
February 23, 2007
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Other features or rights
1
* Preferred stock has a claim on liquidation
proceeds of a stock corporation equal to
its par (or liquidation) value, unless
otherwise negotiated. This claim is senior
to that of common stock, which has only a
residual claimant|residual claim.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
In addition to straight preferred stock,
there is diversity in the preferred stock
market. Additional types of preferred stock
include:
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
* Prior preferred stock—Many companies
have different issues of preferred stock
outstanding at one time; one issue is usually
designated highest-priority. If the company
has only enough money to meet the dividend
schedule on one of the preferred issues, it
makes the payments on the prior preferred.
Therefore, prior preferreds have less credit
risk than other preferred stocks (but usually
offers a lower yield).
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Preference preferred stock—Ranked behind
a company's prior preferred stock (on a
seniority basis) are its preference preferred
issues. These issues receive preference over
all other classes of the company's preferred
(except for prior preferred). If the company
issues more than one issue of preference
preferred, the issues are ranked by seniority.
One issue is designated first preference, the
next-senior issue is the second and so on.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
It is a one-way deal; one cannot convert the
common stock back to preferred stock
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Cumulative preferred stock—If the dividend is not
paid, it will accumulate for future payment.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Exchangeable preferred stock—This
type of preferred stock carries an
embedded option to be exchanged for
some other security.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
* Participating preferred stock—These
preferred issues offer holders the opportunity
to receive extra dividends if the company
achieves predetermined financial goals.
Investors who purchased these stocks
receive their regular dividend regardless of
company performance (assuming the
company does well enough to make its
annual dividend payments). If the company
achieves predetermined sales, earnings or
profitability goals, the investors receive an
additional dividend.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Perpetual preferred stock—This type
of preferred stock has no fixed date on
which invested capital will be returned
to the shareholder (although there are
redemption privileges held by the
corporation); most preferred stock is
issued without a redemption date.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Putable preferred stock—These issues
have a Put option|put privilege, whereby
the holder may (under certain conditions)
force the issuer to redeem shares.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
1
* Monthly income preferred stock—A combination of
preferred stock and subordinated debt
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Types
* Non-cumulative preferred stock—
Dividends for this type of preferred stock
will not accumulate if they are unpaid;
very common in TRuPS and bank
preferred stock, since under Bank for
International Settlements|BIS rules
preferred stock must be non-cumulative if
it is to be included in Tier 1 capital.Basel
Committee on Banking Supervision
[Minimum Capital Requirements
http://www.bis.org/publ/bcbs128b.pdf]
Accessed 2007-1-12
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Usage
Preferred stocks offer a company an
alternative form of financing - for
example through Pension led
funding|pension-led funding; in some
cases, a company can defer dividends by
going into arrears with little penalty or
risk to its credit rating, however, such
action could have a negative impact on
the company meeting the terms of its
financing contract.. With traditional
debt, payments are required; a missed
payment would put the company in
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Usage
1
Some corporations contain provisions in
their charters authorizing the issuance of
preferred stock whose terms and
conditions may be determined by the
board of directors when issued
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Users
1
In many countries, banks are encouraged to issue
preferred stock as a source of Tier 1 capital
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Users
1
A company may issue several classes of
preferred stock. It may undergo several
rounds of financing, with each round
receiving separate rights and having a
separate class of preferred stock. Such a
company might have Series A Preferred,
Series B Preferred, Series C Preferred
and common stock.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Users
1
In the United States there are two types of
preferred stocks: straight preferreds and
convertible preferreds
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Users
There are income-tax advantages
generally available to corporations
investing in preferred stocks in the United
States. See Dividends received deduction.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Users
1
Through preferred stock, financial
institutions are able to gain leverage
while receiving Tier 1 equity credit.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Germany
Industry stock indices usually do not
consider preferred stock in determining the
daily trading volume of a company's stock;
for example, they do not qualify the
company for a listing due to a low trading
volume in common stocks.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - United States
This has led to the development of
Trust-preferred security|TRuPS: debt
instruments with the same properties
as preferred stock
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - United States
1
The size of the preferred stock market in
the United States has been estimated as
$100billion (), compared to $9.5trillion for
equities and US$4.0trillion for
bonds.Standard Poor's
[http://www2.standardandpoors.com/spf/p
df/index/Preferred_Stock_Primer_2009.pdf
?vregion=usvlang=en] 2009-08-27
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Other countries
1
*Czech Republic – Preferred stock cannot be more
than 50 percent of total equity.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Preferred stock - Other countries
1
*Brazil – In Brazil, up to 50 percent of the
capital stock of a company may be
composed of preferred stock. The
preferred stock will have at least one less
right than the common stock (normally
voting power), but will have preference in
receiving dividends.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Monthly income preferred stock
1
'Monthly income preferred stock' or 'MIPS'
is a hybrid security created by Eli
Jacobson,http://sullcrom.com/jacobsoneliy
ahud/ a Sullivan Cromwell tax partner,
and introduced to the market by Goldman
Sachs in
1993.[http://findarticles.com/p/articles/mi_
m4130/is_2_29/ai_67720678 Raising
Capital Using Monthly Income Preferred
Stock: Market Reaction and Implications
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Monthly income preferred stock
1
A special purpose entity of the issuer sells
the preferred stock to the public and then
lends the proceeds to the parent
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Monthly income preferred stock
1
Because of these features, MIPS at one point
dominated the market for traditional perpetual
preferred equity, accounting for over 70% of
all new preferred
issues.[http://findarticles.com/p/articles/mi_m
4130/is_2_29/ai_67720678 Raising Capital
Using Monthly Income Preferred Stock:
Market Reaction and Implications for Capital
Structure Theory] However, MIPS as a tax
shelter no longer works. The credit rating
agencies consider MIPS to be preferred
stock.
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Participating preferred stock
Holders of participating preferred
stock get both their money back (with
interest) and the money that is
distributable with respect to the
percentage of common shares into
which their preferred stock can
convert
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Participating preferred stock
1
Also, unlike common stock, a preferred stock
pays a fixed dividend that does not fluctuate
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Participating preferred stock
1
The main benefit to owning preferred
stock is that the investor has a greater
claim on the company’s assets than
common stockholders. Preferred
shareholders always receive their
dividends first and, in the event the
company goes bankrupt, preferred
shareholders are paid off before the
holders of common stock. In general,
there are four different types of
preferred stock: cumulative
preferred, non-cumulative,
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Convertible preferred stock
1
Terms of the preferred stock are
described in the articles of
association
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Convertible preferred stock
Similar to bonds, preferred stocks are
rated by the major credit-rating
companies. The rating for preferreds is
generally lower than for bonds because
preferred dividends do not carry the same
guarantees as interest payments from
bonds and because preferred-stock
holders' claims are junior to those of all
creditors.
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
Convertible preferred stock - Preference in dividends
preferred stock; any
dividends passed are lost
if not declared..
1
https://store.theartofservice.com/the-preferred-stock-toolkit.html
For More Information, Visit:
• https://store.theartofservice.co
m/the-preferred-stocktoolkit.html
The Art of Service
https://store.theartofservice.com