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Trust-preferred)
A Trust preferred security is a security possessing characteristics of both equity and debt issues. A company creates trust-preferred securities by creating a trust and issuing debt to the new entity.
The security is similar to debentures and preferreds in that it's generally longer term, has early redemption features, makes quarterly fixed interest payments, and matures at face value.
Usages
Trust preferreds have been created by companies for their favorable accounting treatments and flexibility. Specifically, these securities are taxed like debt obligations by the IRS while maintaining the appearance of equities in a company's accounting statements as according to GAAP procedures.
Because the interest paid to the trust is tax-deductible , the company may realize significant tax benefits.
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