Long before taxpayer-sponsored bailouts or state-sponsored “resolutions” of financial institutions came to occupy such a prominent place in our collective consciousness, financial institutions relied on hybrid capital securities as an important component of their funding plans.

Hybrid securities have certain equity and certain debt characteristics and provided an attractive, cost-efficient capital-raising tool. Trust preferred securities, mandatorily convertible debt securities, and various other forms of preferred stock were viewed by issuers as non-dilutive and had tax and ratings advantages.

Originally published in Thomson Reuters: Business Law Currents on August 14, 2013.