Preferred Shares may be classified as interconvertible if each element of the pair may be converted into the other element on a specified date (or dates) in the future at the holder’s option – always (I think!) with some restriction to ensure that each element must meet a minimum size requirement before it is allowed to exist. Examples are FixedFloater/RatchetRate preferreds and FixedReset/FloatingReset preferreds.
This future interconversion implies the prices of the two elements (assuming that both are trading) should be related in a logical way, with the difference in price narrowing as the next interconversion date draws nearer.
This concept has been discussed many times on PrefBlog, with other versions of this concept published via Preferred Pairs and Pairs Equivalency Calculator. There is also a Part 2 of this essay, published in May, 2012.
Look for the research link!
[…] follows an an earlier look at the subject from the February, 2011, edition of […]
[…] the concept during my seminar on Floating Rate Issues; prepared a spreadsheet that was linked in my essay on Preferred Share Interconvertibility; and have finally linked it in a “PrefPick” in Canadian Moneysaver … so […]