Discuss callable preferred shares from the issuer's point-of-view
Call Provisions
Callable preferred shares provide the issuer with the right (that is, the option)—but not the obligation—to repurchase preferred shares at a specified price, which may vary according to a preset time schedule. If financing becomes available at a cost lower than the rate fixed for the preferred shares, the issuing firm can reduce its financing costs by issuing new securities and then exercising its option to reacquire the outstanding preferred shares at a fixed price. The call option is valuable to the issuing firm but makes the shares less attractive to potential owners of the shares. Other things equal, a firm will receive a smaller amount from issuing callable shares than from issuing noncallable shares.
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