A preferred equity redemption cumulative stock (PERCS) that is designed to replicate its underlying mandatory conversion preferred stock. A key feature of this synthetic product is the nonexistent involvement of the corporation to whose stock it is linked. Synthetic PERCS are essentially debt obligations on the originating company rather than equity of the company to whose shares they are tied. The coupon payment may be taxable as interest rather than as dividends. However, the basic features of the buy-write security are also available in synthetic PERCSs.
Derivatives
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