Trust Preferred Securities Hollywood FL

Source: BIG BUILDER Magazine
Publication date: March 1, 2006

By Jamie Pirrello

Capital markets innovations seldom benefit home builders directly. Collateralized Mortgage Obligations (CMO), for example, drive mortgage finance and investment, which in turn benefits home builders. But, when a new capital market tool comes along that can drop benefit down to the bottom line, it's worth a look. JMP Securities' Trust Preferred (TP) Securities can sound dauntingly complex on first blush, but executives at both public and private home builders should consider carefully what they are and what they offer.

Simply, TP Securities are a lower-cost unsecured long-term corporate debt, designed to resemble equity on the balance sheet. “Unsecured” by definition, it requires no piece of land or units under construction to secure the obligation, which is junior to all other debt. The term of the security can range 10 to 30 years, hence the “long-term” designation. More common unsecured long-term corporate debt, such as mezzanine debt, costs more. Also, TP Securities do not require a road show with management presentations to court investors, and there is no need to obtain a credit rating from Standard & Poor's or Moody's. Finally, JMP Securities has been able to raise the Securities in amounts as low as $15 million. So, smaller and mid-sized builders—as well as the big guys—can avail of this security.

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