LEVERAGED FUNDING As part of the total package for its $4.35 billion
acquisition of Sperry Corp, the Burroughs Corp plans to raise $250
million of capital via an issue of money market preferred stock.
The money market preferred, invented by Shearson Lehman Brothers in
1984, is a perpetual preferred that gets priced every seven days by
Dutch auction. This competitive pricing technique tends to result in a
lower yield than the comparable short-term paper. Essentially, the money
market preferred is a preferred stock with a floating dividend that is
viewed by the rating agencies as permanent equity capital. Given its
equity status, its use as an acquisitions vehicle in highly leveraged
transactions is likely to increase.
The primary investors in money market preferreds are corporations
elegible for the 85% divided exclusion. On as issue yielding 5%, for
example, the corporation pays out only 7.5% of the dividend in...
