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What does this excerpt of legalese mean?

Commencing on November 4, 2020, we may redeem, at our option, the Series A Preferred Stock, in whole or in part, at a cash redemption price of $25.00 per share, plus all accrued and unpaid dividends to, but not including, the redemption date. The Series A Preferred Stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any of our other securities.

https://www.sec.gov/Archives/edgar/data/1582982/000149315217007128/form424b3.htm

The above sounds like on November 4, 2020, the company can somehow "get back" all its preferred shares, including "yanking back" ownership of any of these preferred stock that I own.

I am sure that I'm interpreting that incorrectly, so can anyone please explain what that excerpt actually means? An explanation in lay terms is appreciated.

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Short answer: it means exactly what it says and more or less what you fear: from 4th November 2020, the company (Medical Transcription Billing, Corp) has the option of redeeming (= "calling" or buying-back) the Series A Preferred Stock (in whole or in part) at the original issue price of $25 each. This does not necessarily mean the company will redeem any or all of the Preferred Stock – only that it has the option to do so from that date.

This "Preferred Stock" page on Investopedia covers many details of preferred stock, although – as it notes:

Preferred stock comes in a wide variety of forms [...] The features described above are only the more common examples, [...] A company can issue preferred shares under almost any set of terms,

So what that page says is a general overview, and may not always apply to MTBC's preferred stock.

On why a company might buy-back its preferred stock: this starts with the status of preferred stock, which Investopedia describes as:

Preferred shares are equity, but in many ways, they are hybrid assets that lie between stock and bonds.

So in buying preferred stock, you (or the original purchaser if you acquired your stock on a secondary market) is closer to having made a loan to the company than a traditional ("ordinary") stockholder. Redemption under the clause you quoted is, in effect, repaying the loan early. According to Investopedia, a company may consider this:

If shares are callable, the issuer can purchase them back at par value after a set date. If interest rates fall, for example, and the dividend yield does not have to be as high to be attractive, the company may call its shares and issue another series with a lower yield. Shares can continue to trade past their call date if the company does not exercise this option.

Although this includes "and issue another series with a lower yield" I suspect this is one of those "varies by company" things: MTBC does not appear to be under any obligation to issue (or even offer) another series of preferred stock. The repaying of the original $25 "loan" (plus any dividends paid while you held the stock) would cancel all their obligations to you.


For anyone considering buying Preferred Stock (or for you in deciding whether to keep your holding), it is probably worth highlighting the following passages.

Specific to these shares, from the opening page of MTBC's prospectus:

Investing in our Series A Preferred Stock involves significant risks. You should carefully consider the risk factors beginning on page 9 of this prospectus and the risk factors incorporated by reference into this prospectus before purchasing any of the Series A Preferred Stock offered by this prospectus.

and from page 9 of that document:

The Series A Preferred Stock ranks junior to all of our indebtedness and other liabilities.

In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid.

On a more general note, from the above-referenced Investopedia article:

Preferred stock issuers tend to group near the upper and lower limits of the credit-worthiness spectrum. Some issue preferred shares because regulations prohibit them from taking on any more debt, or because they risk being downgraded.

although it does also note:

On the other hand, several established names like General Electric, Bank of America and Georgia Power issue preferred stock to finance projects.

In short: my interpretation is that – even more so than with "traditional" stocks and shares – buying preferred stock may carry significant risks and is not for the unwary.

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The company is not "yanking back" shares of your preferred stock. It was issued with a call date of 11/04/20 with no Maturity Date. That means that they have the right to call the stock on that date but not the obligation.

QuantumOnline.com is the best source for information on preferred stocks. From their information page:

When is a preferred callable?

Generally, preferred stocks are callable after five years from the date of issue. Callable means that the issuer has the right to call or redeem a preferred stock after the five years are up but is not obligated to call the preferred stock. In other words, the issuer will call (redeem) a preferred stock when it is to their benefit to do so. That means that they will call a preferred stock when interest rates have dropped from the date of issue but they will not call a preferred stock when interest rates have stayed the same or risen during the period.

In general, an issuer will call an existing preferred and issue a new one when interest rates have dropped sufficiently so that they can issue a new preferred with an dividend rate at least 1% lower than the existing preferred. The 1% lower rate is necessary to cover their costs of calling the existing preferred and issuing a new preferred. Of course, an issuer might also call a preferred when they have sufficient funds available to cover the amount of the call and no longer wish to continue to pay the dividends for an existing preferred.

The symbol for your security is MTBCP. You can read a distilled version of the prospectus here:

http://www.quantumonline.com/

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