Trust Preferred securities are in essence junior bonds issued mostly by banks and utilities, and their payments are taxable as interest. They also have maturity dates.
In this form of ownership, as an example, a bank will form another entity, a Delaware trust, and cause that new entity to issue preferred stock to the public, with the proceeds used to buy a junior bond from the bank. The preferred stock represents a beneficial interest in the junior bonds owned by the trust. So, it is a preferred stock issued by a trust, but that "preferred stock" represents an beneficial interest in a bond owned by the trust.
The junior bond owned by the trust will be senior in the capital structure to any equity preferred stocks. Any form of equity will be inferior to any bond in the priority chain in the event of bankruptcy, with the lowest rung occupied by common stock, then equity preferred, then junior bonds such as Trust Preferred securities, then senior unsecured and secured debt.
A Trust Preferred security will trade like a stock on a stock exchange, rather than as a bond in the bond market, and would consequently be classified by the generic name "exchange traded bonds".
Generally, these securities have liberal rights reserved to the issuer to defer interest payments, five years is a frequent maximum deferral period, but the deferred interest is cumulative and bears interest at the coupon rate for the security.
Deferral of interest payment is legally permitted when the issuer has ceased making cash distributions on more junior securities which would be common and equity preferred stocks. Generally, the issuer would also not be allowed to use cash to buy a junior security while deferring interest payments on its trust preferred securities.
Any institution which finds its necessary to eliminate both common and non-cumulative preferred dividends, and to postpone junior debt payments, is already skating on very thin ice, and the market will have already smashed the price of junior debt issues. This will not be due to a fear of deferral, which would be bad enough, but out of a legitimate concern that the security itself will become worthless. So, as a result, I generally prefer buying senior debt and my exposure to junior debt issues is minimal.
To find a list of trust preferred stocks, I would recommend that individual investors join QuantumOnline and just look in the Trust Preferred section under "Income Tables" Trust Preferred Securities Table - QuantumOnline.com
As a result of the financial reform legislation passed in 2010, banks with assets greater than $15 billion as of 12/31/09 will have to phase out the use of trust preferred securities as TIER 1 equity capital. (Section 171(b)(4)(NYSE:C) of Dodd-Frank law found at page 153 of docs.house.gov .pdf; page 5 www.paulhastings.com/.pdf) The passage of that law has caused the redemption of a large number of trust preferred securities by bank holding companies.
I am not including in the following snapshots trust preferred securities owned in the Trust Certificate legal form of ownership. There were a large number of trust preferred stocks that were the underlying security in Trust Certificates.
All of my lots were small ones, ranging usually between 50 to 100 shares, which is the case for most of the exchange traded bonds and preferred stocks bought and sold.
SVB Capital II 7% (SIVBO:NASDAQ): I will mention this one first, since I am surprised that it has not yet been redeemed by SVB Financial Group (NASDAQ:SIVB), something that I have probably been saying for over three years now:
2011 Another Roth IRA Account:
Prospectus (may be redeemed now at par plus accrued interest)
Other Financial Company Issues:
Only one of the foregoing is still around and is unappealing to me:
Utility and Retail:
DDT and Heco Capital are still around.
The DDT sells were less than optimal, particularly the one made in March 2009.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics:ERROR CREEP and the INVESTING PROCESS. Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.