An abbreviation for participating convertible preferred stock; a combination of a redeemable preferred stock with common stock. The resulting stock receives the redemption value in additional to any proceeds that would have been obtained upon conversion into common stock. In liquidation, this stock allows the holder to receive the initial investment amount before the common shareholders in addition to a pro rata share of what remains after the liquidation preference is settled. In most cases, the participating convertible preferred stock (PCPS) acts more like a straight preferred stock or common stock rather than a position of convertible preferred. However, upon liquidation or exit, holders receive both the principal amount of the preferred and common stock.
As such, PCPS is usually classified as a position of straight preferred stock and common stock rather than a position of a preferred stock. In some cases, the participating preferred doesn’t receive a redemption of principal if the company’s making sufficiently high profits.
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