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Non-Tech : Income Investing
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To: deeno who wrote (5012)3/20/2013 10:32:58 AM
From: MCsweet1 Recommendation  Read Replies (1) of 52117
 
Re: Trust PFD default?

I have heard of not getting $25 back in the case of some floating-rate 3rd party trust preferreds that were called early by banks, with investors on the hook for losses on interest rate swaps.

For some reason the trust is winding up and they are distributing the underlying 7.995% notes to the Class A and Class B holders. The Class A are people like us buying the securities. I think the Class B holder is Merrill Lynch, the creator of the trust. The Class B holders get some of the notes since they are forgoing some interest payments.

I would like to know the reason for the trust winding up. Is it a technical default by the company? The company CTL seems to be in decent shape.

Third party trust preferreds usually trade at a nice discount in the market, but if you can hosed like this, then they should trade at a discount. It is important for everyone to understand the risks.

Just FYI, the 7.995% notes you are getting are trading at 105.75 in the market.

MC
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