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GregAlex Show full post »
GregAlex wrote:

Okay, care to take a stab at a Deferred Debenture?

So, this looks to be like an instrument used to buy out some preferred shares, or some debt, in a restructuring of the railroad's capital.

Preferred shares pay a fixed dividend, and that dividend must be met in full before common shares can collect any dividend.  With cumulative preferred shares, the amount of dividends owed accumulates each quarter until it is paid, and it must be paid before common can collect anything.

So this debenture (unsecured debt) was likely used to buy out a bond or some preferred shares in order to allow the railroad to raise fresh money in the debt market.  Capital-wise, it stands below bonds (which must pay interest or the bond creditors seize control), but above common (it must be paid off before common can collect anything).

In this case the debenture is for a set sum of money - so it is not preferred.
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