Preferred stock securitization process

• US 20040181475A1
• Filed: 03/14/2003
• Published: 09/16/2004
• Est. Priority Date: 03/14/2003
• Status: Abandoned Application

• Current Assignee: Ejaz Haroon
• Original Assignee: Ejaz Haroon
• Inventors: Haroon, Ejaz
• Application Number:
  US10/388,941
• Publication Number:
  US 20040181475A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A preferred stock securitization process for conveying at least a portion of any dividends and any redemption proceeds on preferred stock to the holders of newly created securities, for the purpose of providing to these security holders the tax benefits of preferred stock dividends. It creates one or more classes of new securities, with different classes of securities having differing degrees of probability that dividends and redemption proceeds will be received.

Claims

1. A method for creating new securities from underlying securities, comprising the steps of:

(a) creating at least one class of securities backed by a pool of preferred stock, with each class having a stated dividend rate and stated redemptions, with different classes of said securities having differing degrees of probability that said stated dividend rate and said stated redemptions will actually be paid

(b) creating a plurality of securities within each said class

(c) conveying at least a portion of any dividends and at least a portion of any redemption proceeds from said pool of preferred stock to said securities for a period of time

whereby tax advantages of preferred stock dividends are provided to holders of said securities.

2. The method of claim 1 in which two classes of securities are created, further comprising the steps of:

(a) allocating dividends from said pool of preferred stock so that any dividends from said pool of preferred stock are passed through to second class of securities only to the extent that said dividends still remain after paying said stated dividend rate on first class of securities and after paying for fees and charges of the issuer

(b) allocating redemption proceeds from said pool of preferred stock so that any redemption proceeds from said pool of preferred stock are passed through to said second class of securities only to the extent that said redemption proceeds still remain after paying said stated redemptions on said first class of securities and after paying for fees and charges of said issuer.

3. The method of claim 2, further comprising the step of guaranteeing that any shortfall in paying said stated dividend rate on said first class of securities, and any shortfall in paying said stated redemptions on said first class of securities, will be met by said issuer of the first and second classes of securities by setting up an additional pool of preferred stock and purchasing preferred stock for said additional pool of preferred stock in an amount sufficient to overcome the shortfalls, with any remaining amount in said additional pool of preferred stock being passed through to said issuer.

4. The method of claim 2, further comprising the step of guaranteeing that any shortfall in paying said stated dividend rate on said first class of securities, and any shortfall in paying said stated redemptions on said first class of securities, will be met by the issuer of the first and second classes of securities by purchasing a guarantee from a financial institution whereby said financial institution will provide payments of preferred stock dividends and preferred stock redemption proceeds to said first class of securities in an amount sufficient to overcome the shortfalls.

5. The method of claim 1 in which a single class of securities is created, further comprising the steps of:

(a) allocating dividends from said pool of preferred stock so that any dividends from said pool of preferred stock are passed through to said securities up to said stated dividend rate on said securities

(b) allocating redemption proceeds from said pool of preferred stock so that any redemption proceeds from preferred stock are passed through to said securities up to said stated redemptions on said securities

(c) allocating any remaining dividends and redemption proceeds by passing them through to the issuer of said securities.

6. The method of claim 5, further comprising the step of guaranteeing that any shortfall in paying said stated dividend rate on said securities, and any shortfall in paying said stated redemptions on said securities, will be met by the issuer of said securities by setting up an additional pool of preferred stock and purchasing preferred stock for said additional pool of preferred stock in an amount sufficient to overcome the shortfalls, with any remaining amount in said additional pool of preferred stock being passed through to said issuer.

7. The method of claim 5, further comprising the step of guaranteeing that any shortfall in paying said stated dividend rate on said securities, and any shortfall in paying said stated redemptions on said securities, will be met by the issuer of said securities by purchasing a guarantee from a financial institution whereby said financial institution will provide payments of preferred stock dividends and preferred stock redemption proceeds to said securities in an amount sufficient to overcome the shortfalls.

8. The method of claim 1, further comprising the step of granting to holders of said securities the right to redeem at least part of the security earlier than its stated redemptions, where said right to redeem may be subject to an adjustment selected from the group consisting of changes in market value and redemption charges.

9. The method of claim 1, further comprising the steps of:

(a) selecting preferred stock for said pool of preferred stock that matches the cash flow characteristics of the various classes of said securities

(b) rebalancing the composition of preferred stock in said pool of preferred stock to maintain cash flow match in the future

whereby the probability of receipt of dividends and redemption proceeds from said pool of preferred stock is increased.

10. The method of claim 1, further comprising the step of illustrating said stated dividend rate of said securities as compared to after tax return on competing investments.

11. The method of claim 1, further comprising the step of purchasing credit derivatives that at least partly offset any future reduction in dividends and in redemption proceeds from said pool of preferred stock in the event of deterioration in credit worthiness of preferred stock held by said pool of preferred stock.

12. The method of claim 1, further comprising the step of purchasing options that at least partly offset any future reduction in dividends from said pool of preferred stock in the event that dividend rates decline.

13. The method of claim 1, further comprising the step of granting to holders of said securities the right to invest certain additional amounts.

14. The method of claim 1, further comprising the step of creating additional classes of said securities from time to time.

15. The method of claim 1, further comprising the step of granting to holders of said securities the right to reinvest dividends.

16. The method of claim 1, further comprising the step of granting to holders of said securities the right to reinvest redemption proceeds.

17. The method of claim 1, further comprising the step of issuing additional securities within each class from time to time.

18. The method of claim 1, further comprising the step of allowing said securities to be traded on a secondary market.

19. The method of claim 1, further comprising the step of obtaining a credit rating on at least one class of said securities.

20. The method of claim 8, further comprising the step of enhancing the amount paid upon redemption of at least part of said security earlier than its stated redemptions, where such enhancement may be subject to the occurrence of an event to the holder of said security selected from the group consisting of death and disability and nursing home confinement and diagnosis of terminal illness and diagnosis of a specified critical illness.