Canadian Originated Preferred Securities (COPrS)

What Are Canadian Originated Preferred Securities (COPrS)?

Canadian Originated Preferred Securities (COPrS) are a type of long-term subordinated debt instrument presented by Merrill Lynch during the 1990s. COPrS (pronounced like "coppers") are only issued in Canada. COPrS share a portion of similar highlights as preferred shares issued by U.S. companies.

Grasping Canadian Originated Preferred Securities (COPrS)

COPrS are a form of long-term, unsecured debt. They are rated like bonds and traded on Canadian stock exchanges. COPrS pay interest quarterly (albeit the issuer normally has the option to concede paying interest for upwards of 20 consecutive quarters).

COPrS can be called — or repurchased by their issuers — following five years, so they are subject to reinvestment risk. Reinvestment risk alludes to the likelihood that an investor can not reinvest cash flows — like coupon payments — at a rate equivalent to their current return.

The subordinate status of COPrS adds one more level of risk, however they likewise offer a higher yield. They are additionally taxable investments. What's more, in spite of the fact that COPrS are like debt since quarterly distributions are treated as interest for tax purposes, they trade on a cum-dividend and an ex-dividend basis, similar as preferred shares, which consequently means the accrued interest isn't added to the market price.

The main company to offer COPrS was TransCanada (starting around 2019, TransCanada operates under the name TC Energy). TC Energy was established in 1951 to foster the TransCanada Pipeline (presently called the Canadian Mainline).

While Merrill Lynch has trademarked the COPrS title, numerous other comparably structured unsecured debt instruments have since carried out.

Special Considerations

COPrS are generally notable for their job as a chief financing instrument in TransCanada PipeLines Limited, a major North American energy company that constructs and operates energy infrastructure, whose operations incorporate Canadian Natural Gas Pipelines, the U.S. Natural Gas Pipelines, and Mexico Natural Gas Pipelines, as well as various power plants.

In 1996, as part of its overall work to expand its unregulated and international organizations reach, TransCanada issued COPrS instruments, as an add-on to the recently issued Trust Originated Preferred Securities (TOPrS). Together, COPrS and TOPrS addressed the greater part of the company's preferred capital component.

Notwithstanding, COPrS and TOPrS have a few key differences. Distinctly: with TOPrS, TransCanada PipeLines had retained its capacity to pay deferred interest in common stock, as opposed to cash, to investors. What's more, albeit the ultimate dividend payment to the existing preferred stockholders was limited by provisions in the company's senior debt arrangements, no such restrictions applied to COPrS.

Regardless, TransCanada's more conservative approach to funding its new venture was seen as an appealing option for investors searching for lower-risk profiles and moderately stable earnings and cash flows.

Features

• They share a portion of similar highlights as preferred shares in the U.S.
• These securities are only issued in Canada.
• Canadian Originated Preferred Securities (COPrS) are a type of long-term subordinated debt instrument presented by Merrill Lynch during the 1990s.