What Is a Quarterly Income Preferred Securities

Shares that are an interest in a limited partnership that exists solely for the purpose of issuing preferred securities and lending the proceeds of the sales to its parent company. They usually have a $25 par value, NYSE listing, and cumulative quarterly distributions.

Understanding Quarterly Income Preferred Securities (QUIPS)

QUIPS are an example of hybrid securities, that were created by Goldman, Sachs & Co. as a service mark and a marketing tool. QUIPS combine features of preferred stock and corporate bonds. Hybrids can pay a higher rate of return than preferred stock because dividends are paid with pretax dollars and, therefore, they generate a sizable tax break for corporations. The issuing entity, whether it’s a Limited Liability Company (LLC), or a Limited Partnership (LP) is typically a wholly-owned subsidiary of a U.S. parent corporation. These issuers may be either U.S. or non-U.S entities, but in either case, the parent corporation pays interest on the proceeds it receives from the LLC or LP, directly to QUIPS holders, in the form of quarterly dividends.

Higher Investor Risk

Similar to other forms of hybrid securities such as Monthly Income Preferred Stock (MIPS), and Trust Originated Preferred Stock (TOPrS), if the issuer of QUIPS fails to make a promised periodic payment, investors have no power to force the issuer into bankruptcy. For this reason, it’s critically important for QUIPS investors to be mindful of the fact that the issuer has the right to suspend or defer its dividends payouts--despite the fact that said dividends are technically interest payments, without triggering default status. But while this characteristic creates added risk for investors, the QUIPS structure benefit parent corporations, because it does not raise the parent's debt levels, and therefore does not jeopardize its debt ratios.

Flexible Maturity

QUIPS typically have maturities of 30-50 years, however, in some cases, the issuers can extend the maturity cycle to a longer time period. For example, a well-known telecom provider initially issued QUIPS that began with a 30-year maturity, but then extend the maturity cycle to 49 years. Another QUIPS issuer abbreviated the maturity cycle from 30 years to a five-year non-call period. But like most hybrid securities, the average maturation period is 40 years.