Pref equity in the cap stack
Having a hard time understanding if pref equity is considered debt or equity within the capital stack?
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Just wait until you start adding pref debt.
Can be structured both ways. If Agency on layered on top, they like to see it was common equity (usually)
Depends on tax consequence, if a loan aka mezz you might pay ordinary income. If pref equity, you can structure it as mix of current and accrued allowing for more flexibility. Ask a capital markets d&e broker, they should know the reasons why. I think it’s control, taxes and current pay.
I might be stating the obvious here but also consider the security position of the "pref equity" holder to tell if it's actually closer to mezz
If you're capital stack is otherwise just traditional senior debt and common equity, it doesn't matter if you add mezz debt or pref equity to fill a gap in the middle, the position will remain the same, right? To me the main difference is how the guy above laid it out, control and taxes.
Control, taxes, position - also important to note the difference between participating and non participating pref
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