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1、CHAPTERSEVENTEENNONCONVERTIBLEPREFERREDSTOCKFRANKJ.FABOZZI,PH.D.,CFA,CPAFrederickFrankAdjunctProfessorofFinanceSchoolofManagementYaleUniversitySTEVENV.MANN,PH.D.ProfessorofFinanceMooreSchoolofBusinessUniversityofSouthCarolinaPreferredstockisahybridsecuritythatcombinesfeaturesofbothcommo
2、nstocksandcorporatebonds.Whilepreferredstockpossessessomedebtlikefeatures,itisconsideredtobeanequitysecurity.Preferredstockholdershaveaclaimonthecashdividendspaidbytheissuingcorporation,andtheirclaimisseniortothatofcommonshareholders.Furthermore,cashdividendspaidtopreferredstockholdersa
3、realmostalwaysfixedbycontract(e.g.,aspecifieddollaramountorpercentageoftheirfacevalue).Accordingly,“plainvanilla”preferredstockis,inessence,aperpetuity.Thespecifiedpercentageiscalledthedividendrate,whichmaybefixedorfloating.Almostallpreferredstockissuedtodaylimitsthepaymentstobereceivedbythe
4、securityholdertoaspecifiedamountwiththeprovisothatthecashflowsreceivedwillneverexceedthosespecifiedinthecontractandmaybeless.Failuretomakepreferredstockdividendpaymentscannotforcetheissuerintobankruptcy.Iftheissuerfailstomakethepreferreddividendpaymentsasspecifiedinthecontract,thendepending
5、onthetermsoftheissue,oneoftwothingscanoccur.Iftheissueiscumulative,thedividendpaymentaccruesuntilitisfullypaid.Conversely,iftheissueisnoncumulative,misseddividendpaymentssimplyareforgone.Failuretomakedividendpaymentsalsomaytriggercertainrestrictionsontheissuer’smanagement.Asanexample,if
6、dividendpaymentsareinarrears,preferredshareholdersmaybegrantedvotingrightstoelectsomememberstotheissuer’sboardofdirectors.Thisfeatureiscalledcontingentvot-ingbecausethevotingrightsarecontingentonamisseddividendpayment.11.Bycontrast,blankcheckpreferredstockcontainsaprovisionthatgivesvoti
7、ngrightstoapprovedpreferredshareholdersasprotectionagainstahostiletakeoverattempt.385Copyright©2005,2001,1997,1995,1991,1987,1983byTheMcGraw-HillCompanies,Inc.Clickherefortermsofuse.386PART3SecuritiesCumulativepreferredstockhassomedebtlikefeatures,namely,(1)thecashflowspromisedt
