Leveraged funding. (M & A, supplement to Euromoney corporate finance – July 1986)

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.