What is the difference between Redeemable Preferred Stock and Retractable Preferred Stock. Also, why would a company NOT want to force them back after the pre-set call date? Why would they wait longer to take it back (unless they don’t have enough $ to pay back the premium of course)?

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What is the difference between Redeemable Preferred Stock and Retractable Preferred Stock. Also, why would a company NOT want to force them back after the pre-set call date? Why would they wait longer to take it back (unless they don’t have enough $ to pay back the premium of course)?

In: Economics

The difference is who gets to buy/sell the stock. For Redeemable Preferred Stock, the company can buy the stock back after a preset date at a preset price. For Retractable, the owner of the stock can choose to sell it back to the company after a preset date at a preset price.

The company could choose to wait until the stock is trading at a super high price. This way, they’re getting it for a LOT below asking price. If the redeemable price is close to the market value, it would make more sense for the company to purchase the stock at the market value.

It’s a lot closer to debt than a normal stock. While the owner of the stock is entitled to a piece of equity, the fact that it could be redeemed at any time is more characteristic of a loan.