Auction rate preferred: an emerging favorite of tax-conscious corporate investors

Article Abstract:

Provisions of the Tax Reform Act of 1986 are stimulating US companies to seek new methods of handling short-term cash investments so as to maximize after-tax returns. Tax reform has eliminated the investment tax credit, as well as speeded depreciation and other tax preferences that limited corporate tax liability in the recent past. The latest in what will likely be a series of innovations in corporate tax management is the auction rate preferred stock. Auction rate preferreds are a variation on preferred stocks, first introduced in 1984. Such preferreds allow business investors to take 80 percent tax deductions on stock dividends. An added benefit of auction rate preferreds is that they feature a floating dividend reset at auction every 49 days. Corporate investors like this regularly reset dividend since it assures that the stock will trade at or close to par, and because of high liquidity.

Taxation, Investments, Convertible preferred stocks

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Income guarantee brightens Euronote financing prospects

Article Abstract:

A new method for issuing Euronotes that guarantees funding even if the issue fails makes Euronote financing an attractive alternative. Resources of one or more investment banking firms are combined with those of a commercial bank syndicate. The syndicate issues a backup line of credit facility; if the Euronote issue fails, the syndicate will lend the issuer money (at a rate lower than most bank loans) to make up the difference. Selling the issue is usually handled by a syndicate of investment banking firms, which may bid for the rights to sell all or part of the issue at a given rate, or may divide the issue among the firms. Ways to organize note placement and associated costs are discussed.

Methods, Innovations, Europe, Financial management, Eurobond market, column

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Convertible Adjustable Preferred Stock Looms as Major Financing Method

Article Abstract:

Convertible adjustable preferred stock is currently very popular. It offers convertibility and an adjustible rate which make it desirable. Corporations can avoid long term debt and principal erosion through use of this stock.

Analysis

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