Do you Want PERCS or PRIDES?
Feb 25, 2005
PERCS are a class of preferred shares that offer limited upside participation with the underlying stock (generally 30% to 35% cap) and does mandatorily convert into common shares at maturity. PERCS offer investors higher yields in exchange for capped appreciation and downside risk.
PRIDES are preferred shares that are exchangeable at a premium any time (at the holder's option) into common shares, but mandatorily convert into common shares at maturity. Conversion ratio is typically between 1.00 and 0.82 and is determined by the stock price at maturity.
Both PERCS and PRIDES are amongst the most equity-sensitive convertible structures.
(For more on these see the book Convertible Arbitrage by Nick P. Calamos).
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