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Strategies & Market Trends : TA-Quotes Plus
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To: John Schott who wrote (7853)11/19/1998 3:41:00 PM
From: John Schott   of 11149
 
Please see the other response. My original input on QUIPS was wrong, and the other answer is far better.

I think that ML was the originator of the product concept, but QUIPS are a type of preferred issued not a bond strip. I got confused with another security.

A QUIP is often a "dodge", for the issuer. For example, I now remember the first time I was tempted was in my area. Philadelphia Electric (who then was having problems with completing a nuclear plant) set up a totally owned corporation whose only "business" was the QUIPS. They get sold, the money was conveyed to PE who in turn paid off the dividends and eventually the QUIP principle. As a result, that isn't debt on PE books and would be cheaper than conventional debt to the firm. Moreover, they don't have to worry as much about covenents in the normal bond issue that would be the alternative..

Lots of folks issued QUIPS and I just noticed a large issue by MCI Worldcom..

As a result, the other answer is right. A lot of QUIPS are priced often about $25 at issue and do sport a nice return.

They do not offer much protection in a bankrupcy, as the corporation that issued them is technically a shell and would be wholely without assets to pay either interest or principle if the corporation having the obligation to pay periodic interest and terminal principle were to be bankrupt. At least, that oblication is so subordinate to the underlying corporation that there would be little prospect of recovery.
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