DEFINITION of 'Canadian Originated Preferred Securities - COPrS'

A long-term subordinated debt instrument issued in Canada. COPrS (pronounced "coppers") are a type of derivative equity security invented by Merrill Lynch in the mid-1990s. The first company to offer them was TransCanada PipeLines. COPrS are not the same as preferred shares, but are attractive because they have features which resemble both preferred shares and long-term corporate bonds.

BREAKING DOWN 'Canadian Originated Preferred Securities - COPrS'

COPrS are a form of long-term, unsecured debt that are rated like bonds. They are traded on the Toronto Stock Exchange and pay interest quarterly, though the issuer usually has the option to defer paying interest for as many as 20 consecutive quarters. COPrS can be called after five years, so they are subject to reinvestment risk. Their subordinate status adds another level of risk, but also they offer a higher yield, and they are taxable investments. And although COPrS are similar to debt in the way that quarterly distributions are treated as interest for tax purpose, they trade on a cum-dividend and an ex-dividend basis, much like preferred shares, which consequently means the accrued interest is not added to the market price.

The Importance of COPrS

COPrS are most well-known for their role as a chief financing instrument in TransCanada PipeLines Limited, a major North American energy player, whose operation includes Canadian Natural Gas Pipelines, the U.S. Natural Gas Pipelines, and Mexico Natural Gas Pipelines, as well as numerous power plants. In 1996, as part of its overall effort to expand its unregulated and international businesses reach, TransCanada issued COPrS instruments, as an add-on to the previously-issued Trust Originated Preferred Securities (TOPrS). Together, COPrS and TOPrS represented more than half of the company’s preferred capital component. However COPrS and TOPrS has some key differences. Pointedly: with TOPrS, TransCanada PipeLines had retained its ability to pay deferred interest in common stock, rather than cash, to investors. And although the ultimate dividend payment to the existing preferred stock holders was limited by provisions in the company's senior debt indentures, no such restrictions applied to the COPrS. In any case, TransCanada's more conservative approach to funding its new venture was viewed as an attractive option for investors looking for lower risk profiles and relatively stable earnings and cash flows.

While Merrill Lynch has trademarked the COPrS title, many other similarly structured unsecured debt instruments have since rolled out.

RELATED TERMS
  1. Preferred Debt

    Preferred debt refers to debt obligations that must be repaid ...
  2. Preferred Stock

    Preferred stock refers to a class of ownership that has a higher ...
  3. Subordinated Debt

    Subordinated Debt is a loan or security that ranks below other ...
  4. Subordination Agreement

    Subordination agreement is a legal agreement which establishes ...
  5. Taxable Preferred Securities

    Taxable preferred securities are a preferred equity security.
  6. Debt Instrument

    A debt instrument is a paper or electronic obligation that enables ...
Related Articles
  1. Investing

    Understanding Preferred Stocks

    Companies choose preferred stock for many reasons some being the flexibility of payments and easier to market. Learn the pros and cons of preferred stocks.
  2. Managing Wealth

    What You Need To Know About Preferred Stock

    Curious about preferred shares? Here's what you should know about these bond-like instruments.
  3. Investing

    Looking for Yield? Check Out This Preferred Stock ETF (PFF)

    Take a look at a review of the performance of the most popular preferred stock ETF, the iShares U.S. Preferred Stock ETF from BlackRock.
  4. Investing

    Time to Take Profits as Bull Market Staggers: BofA

    Bank of America Merrill Lynch says it's time to start "locking in profits" on stocks.
  5. Investing

    Valuation Of A Preferred Stock

    Determining the value of a preferred stock is important for your portfolio. Learn how it's done.
  6. Insights

    The January Effect: Why Stock Inflows Are at a Record

    Investors poured a record $58 billion into equity mutual funds and ETFs during the four weeks through Jan. 17, according to research by Bank of America Merrill Lynch.
  7. Investing

    Preferred Stock ETFs With Huge Dividends

    If you prefer huge dividend yields, you might want to consider having a preferred stock ETF in your portfolio.
  8. Investing

    Merrill Edge Added 200 New Advisors in 2017, With More to Come

    Merrill Edge added 200 advisors last year, and more are expected to join the robo-advisory service in 2018.
RELATED FAQS
  1. Do Preferred Shares Offer Companies a Tax Advantage?

    Find out if there is a tax advantage for corporations issuing preferred shares when compared to other forms of financing ... Read Answer >>
  2. How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued ... Read Answer >>
  3. What are some examples of preferred stock, and why do companies issue it?

    Understand the difference between preferred stock and common stock, and learn the primary reasons why companies issue preferred ... Read Answer >>
Trading Center