Fixed-Rate Capital Securities

Both domestic corporations and those which are located abroad issue what are referred to as fixed-rate capital securities which are meant to increase long-term capital at a fixed cost which happens to be tax deductible for all of the issuers. Most of the issuers include utility companies for gas and electricity as well as telephone, insurance, and industrial companies along with banks and a number of other financial institutions which participate in these types of securities. Since 1993 there have been $160 billion in fixed-rate capital securities issued by these companies. Those who invest in these securities will find that unlike stock dividends they are completely tax deductible for the issuer.

Most rating agencies have acknowledged the benefits of this financing tool for various issuers, mostly because of the fact that it provides long-term capital as well as being able to help the issuer defer payments in the event that they are having any financial problems whatsoever. Similar to hot preferred stocks work, the deferrals can only occur if a company puts a stop to the stock dividend payments promptly. In the current market there are three different types of fixed-rate capital securities which are important for you to know about.

These three types of fixed-rate capital securities vary based on whether or not the parent company decides to issue the securities directly or through a sort of conduit financial vehicle which can be another method of doing this. In the case of preferred partnership securities the issuer has several options, being a limited partner or LP, or a limited liability company (LLC) which is essentially organized by the parent company. In both of these structures the partnership uses the total amount which is raised by the initial offering to purchase what are called “junior subordinated debentures” which come from the parent company.

Any money which comes from the actual transaction can be used in a number of ways, including for corporate purposes (general uses). The three main fixed-rate capital securities structures are referred to as trust, debt securities, and partnership. Each of them are associated with different types of operations and they work in unique ways which are important to understand if you are going to get involved in this type of business. Typically these securities have a $25 par value, though some of them can be issued as high as $1,000 depending n the corporation which is issuing the securities.

These securities offer those who are invested in the corporations a number of features which include preferred stocks as well as corporate bonds. One of the reasons that so many people tend to take advantage of these is because of the fact that they can yield attractive fixed quarterly, monthly, or even semiannual income. Usually these investment time frames are predictable with a time period of around twenty to almost fifty years, though there are some which are perpetual and are of investment-grade credit quality which should be quite reassuring to investors of corporations which issue these securities. The fact that these securities are tax-deductible make them especially attractive for corporations, which is why an increasing number of them have started to issue them for the benefit of their investors.

Those who wish to invest in fixed-rate capital securities will want to first speak with their stockbroker about some of the different ones which are currently available. You will find that these securities are offered in an initial public offering to various financial companies which are then traded on the secondary market between brokers. Those who are interested in these types of securities will be able to find a wealth of information on them online, so it is important to take your time when browsing through all of the different options. Once you present a list to your broker he or she will be able to tell you which ones are available.

You will also want to make sure to get an investment ranking for each of the fixed-rate capital securities that you are looking at. A ranking of AAA is typically considered to be the very best investment you can make along with BB which is average and a C rating which is considered to be poor. It will be extremely important to consider the ranking of the securities as this will end up making quite a big difference. It will also be important to give your stockbroker a very specific number of securities that you wish to purchase so they will be able to set a commission for every single transaction. In order to increase your total profits you might want to think about limiting your number of purchases.

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