Does preferred equity have upside?
Can someone explain what exactly preferred equity is and why it's considered equity rather than debt? My understanding is that it's basically very junior debt with no equity upside. If the preferred equity is issued at 10%, it will receive 10% payments annually, so long as there's enough cash to pay other debt holders. However, the return would be capped at 10%, so it's not really equity. The only upside above that would be somehow if the company defaults and there's equity remaining that the preferred equity holders take over and then the company recovers.
you sometimes get warrants in addition. so you are downside protected, and the upside if you exercise the warrants.
Assuming no warrants though, there is no real upside right? Basically junior unsecured debt
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