Fixed-Rate Capital Securities


DEFINITION of 'Fixed-Rate Capital Securities'

A security issued by a corporation that has a $25 par value (although some are issued with a $1,000 par value) and offers investors a combination of the features of corporate bonds and preferred stock. These securities provide the benefits of attractive yields, fixed monthly, quarterly or semiannual income, investment time frames that are generally predictable (20-49 years, although some are perpetual), liquidity and investment-grade credit quality (in most cases).

BREAKING DOWN 'Fixed-Rate Capital Securities'

Unlike common and preferred stock dividends, the distributions made on fixed-rate capital securities are fully tax-deductible for the issuer, just like the interest payments on traditional debt instruments. Rating agencies have taken a positive view of this financing tool for the issuer, because it provides long-term capital and permits the deferral of payments should the issuer experience financial difficulties. However, as with preferred stock, such deferrals can only occur if the parent company stops all other stock dividend payments.

  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Issuer

    A legal entity that develops, registers and sells securities ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  5. Corporate Bond

    A debt security issued by a corporation and sold to investors. ...
  6. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic ...
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