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Author: loopholes One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Re: Trust preferred suspension & OID Date: 11/10/2009 11:21 PM
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If you provide the link to the prospectus, I may be able to help you work through this. There are a number of different ways trust preferred deals were structured. One thing you'd want to look at, outside the tax section, is what is considered to happen under the trust indenture when an event of default (suspension of payment on the trust preferred) occurs. Is there, for example, a liquidating distribution of trust assets, or in-kind deemed exchange of trust assets for trust securities in order of liquidation priority, so that, after the exchange, holders of preferred securities are deemed to directly own pro rata interests in the trust assets (which are OID notes issued by the company, in this case, Ford)? Either would explain having to start accruing OID upon a suspension of payment on the trust preferred.

It was not uncommon for bonds that backed trust preferred securities to give the issuer the option to capitalize interest for the first few years. This would have made all the interest on the bonds have to be accrued as OID rather than 'qualified stated interest.' But there were a lot of ways that trust preferred were structured, too. This makes sense to me based on what you've said and what I remember, but this may all be completely off base for this particular deal.

As to how to figure out amount of OID, there should be an "OID legend" on the front page of the security that tells you either how to calculate the OID or who to call for information about OID. 1099-OID reporting is required, so if you hold the securities in a brokerage account you should call them, refer them to the prospectus and ask them how they plan to go about getting you this information from the company or the company's accountants or paying agent or whoever. Let them earn their fee.
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