Preferred Stock

Question: I don't like to take risks with investments, and I rely on income from my investments to cover living expenses. I'm considering preferred stocks but have never owned them. What do you think? - J. M. Answer: Preferred stocks have been yielding about 6 percent on average, so they fit your desire for income. But these are not guaranteed like a U.S. government bond or CD and are not as reliable as highly rated corporate bonds. So they make sense only if you realize that the higher yields are intended to entice people to take greater risks.

For the first time since January 1991, Unisys Corp. will, next month, pay a quarterly dividend on its preferred stock, a payment that the Blue Bell company said yesterday reflected its strengthening financial position. The $1.40625-per-share dividend on the computer company's Series A preferred stock will be paid Oct. 15 to shareholders of record on Oct. 6. Unisys lost money for seven consecutive quarters through the third quarter of 1991. Yesterday's dividend announcement does not affect the Unisys common stock, on which the company can't pay a dividend until it erases its dividend debt to the preferred shareholders.

It's not a stock. It's not a bond. It's a TOPrS. And Peco Energy Co. will be bringing it to a securities market near you soon. The Philadelphia utility announced yesterday that it would exchange up to $140 million in preferred stock for a newfangled security that allows the company to save taxes by exploiting a loophole in the federal tax code. Peco Energy will share some of those savings with investors by giving them a higher payout than the 7.9 percent that its preferred stock currently yields.

A private management group yesterday said it will buy the chain that owns the area's Eric theaters, but officials in Philadelphia here said no immediate impact on local operations is expected. Tele-Communications Inc. announced it will sell its United Artists movie theaters, parent company to the Eric theaters, to companies owned by Merrill Lynch Capital Partners Inc. and Stewart Blair, who headed UAE from 1987 until the merger with TCI. The sale of the 2,398-screen United Artists theater chain had been expected since the cable television giant acquired United Artists Entertainment Co. in December.

A judge in Wilmington threw out Pitcairn Properties' bankruptcy petition and denied a motion that would have given the Jenkintown real estate firm more time to maneuver in a fight for control against investors who are owed $58 million. Pitcairn Properties described its Chapter 11 filing, last Wednesday, as a "legal move to implement a fair and rational framework to restructure" amid a dreadful market for the suburban office parks that are Pitcairn's specialty. Christopher S. Sontchi, a judge in U.S. Bankruptcy Court in Delaware, published an order dismissing the reorganization petition by Pitcairn Properties Holdings Inc. today, based on arguments at a hearing Friday.

Bethlehem Steel Corp. yesterday said it would make $22.5 million in delinquent payments on two classes of preferred stock. The company, which last year reported an annual profit for the first time in five years, said it was able to make the payments because of improved business conditions and its own improved finances. Bethlehem also announced that it had sought permission from the Securities and Exchange Commission to issue eight million more shares of common stock. Bethlehem Steel raised $186 million by selling 12 million shares of common stock just before the market crashed Oct. 19. The company had 64.4 million shares of stock outstanding as of March 31, 1988.

Unisys Corp. said yesterday that it was about to clear a crucial hurdle before resuming dividends on its common stock. Unisys said it was about to pay off the arrearage on its preferred-stock dividends, which have been behind for three years. Previously, it said common stock dividends would not be paid until the preferred-stock payments were made current. However, a spokesman for the Blue Bell computer maker and information services firm said that no decision had been made to restore the common-stock dividend and that its top priority remained cutting debt.

Standard & Poor's Corp., the New York credit rating agency, yesterday lowered its rating on Unisys Corp.'s debt and preferred stock to just one notch above junk-bond status. The downgrade, affecting about $5 billion of Unisys debt and preferred stock, means Unisys would probably pay higher interest rates or dividends to investors on any new debt or preferred stock it issued. On July 19, Standard & Poor's placed the Blue Bell company's ratings on a review list for a possible downgrade, after the company reported that its second-quarter profits fell 78 percent to $11.8 million from last year's period, and that after paying dividends on preferred stock, it had a loss of $15.1 million, or 9 cents per share.

Citing "continued progress" in Unisys Corp.'s operating results and financial condition, Duff & Phelps yesterday raised its ratings on the Blue Bell computer maker's senior and convertible notes and on its preferred stock. The improvements removed Unisys' securities from Duff & Phelps' Rating Watch, where they were under review for potential upgrades. The rating on senior notes was lifted to Single-B-Plus from Single-B-Minus; the convertible notes' rating went to Single-B from Triple-C; and the preferred-stock rating was raised to Single-B-Minus from DP, for dividends in arrears.

Garden State Park, the 10-month-old Cherry Hill race track, will "continue to incur substantial operating losses" at least through June, the track's parent company told stockholders in its annual report. The race track has experienced deep losses from start-up costs and from problems in attracting crowds to both its thoroughbred and standardbred (harness) races. In the fiscal year ended June 30, International Thoroughbred Breeders Inc.'s race-track operations lost $3.76 million, with all of the loss coming between April and June.

Question: I don't like to take risks with investments, and I rely on income from my investments to cover living expenses. I'm considering preferred stocks but have never owned them. What do you think? - J. M. Answer: Preferred stocks have been yielding about 6 percent on average, so they fit your desire for income. But these are not guaranteed like a U.S. government bond or CD and are not as reliable as highly rated corporate bonds. So they make sense only if you realize that the higher yields are intended to entice people to take greater risks.

The U.S. Treasury Department named a director to Royal Bancshares of Pennsylvania Inc.'s board Tuesday, after the Narberth-based bank missed six dividend or interest payments on its preferred stock. Treasury appointed Gerard M. Thomchick, who has more than 25 years' experience in Pennsylvania banking. At First Commonwealth Financial based in Indiana, Pa., Thomchick was chief operating officer and senior executive vice president, as well as president and chief executive officer of a subsidiary bank.

A judge in Wilmington threw out Pitcairn Properties' bankruptcy petition and denied a motion that would have given the Jenkintown real estate firm more time to maneuver in a fight for control against investors who are owed $58 million. Pitcairn Properties described its Chapter 11 filing, last Wednesday, as a "legal move to implement a fair and rational framework to restructure" amid a dreadful market for the suburban office parks that are Pitcairn's specialty. Christopher S. Sontchi, a judge in U.S. Bankruptcy Court in Delaware, published an order dismissing the reorganization petition by Pitcairn Properties Holdings Inc. today, based on arguments at a hearing Friday.

Saying it is owed $7.3 million, Aramark Corp., the Philadelphia food-services provider, has sued a New Jersey operator of correctional facilities. In the suit, Aramark contends Community Education Centers Inc., of West Caldwell, N.J., has been in default on bills since at least June 2008. Locally, Aramark services Community Education Centers facilities in Philadelphia, Delaware County, Reading, and Trenton. Aramark's lawsuit, filed Feb. 18 in U.S. District Court in Philadelphia, said Community Education Centers was overdue on $5.2 million of the total, and it requested that a judgment, including interest, costs, and attorney's fees, be entered in its favor.

Sun Bancorp Inc. in Vineland, N.J., this week joined the handful of banks around the country that have ended their involvement in the federal rescue program for banks. Sun paid $2.1 million to buy back a warrant that gave the government a 10-year window to buy Sun shares at a preset price. Critics have pounced on the Treasury's repurchase deals with several relatively small banks, such as Sun, as short-changing taxpayers, who have trillions at stake in the nation's many-pronged economic-rescue effort.

The federal government's infusion of $250 billion for major banks, with very few strings attached, should help restore confidence in the financial industry. But it's become increasingly clear that the broader economy faces more pain, more job losses, and a longer recovery. That means policymakers in Washington must focus more attention on struggling families and job creation. The nine large banks receiving Treasury's initial outlay will now be better able to lend and borrow.

Question: How will the new plan work? Answer: The government plans to inject $250 billion of the $700 billion rescue package directly into financial institutions through purchase of preferred stock - shares that get top priority when dividends are paid. In return, the government will receive dividends at an annual rate of 5 percent for five years, and 9 percent after that. It also will have the right to buy common shares that have lower priority when dividends are paid. Q: What banks can participate?

Rite Aid Corp. reported a second-quarter loss yesterday on declining pharmacy sales and rising costs. The Camp Hill retailer said it lost $17.1 million, or 3 cents a share, in the quarter that ended Aug. 27, compared with profit of $1.3 million, amounting to zero cents a share, during the same period a year ago. The loss included payment of preferred stock dividends. Not including payments related to preferred stock, the second-quarter loss this year totaled $1.57 million.

In a bid to keep its lenders at bay, American Business Financial Services Inc. is asking investors to exchange unsecured notes for a combination of secured notes and preferred shares. The offer, which covers $200 million in notes issued before April 1, will expire Dec. 31 unless extended, according to Securities and Exchange Commission filings this month. The company had $687 million of investment notes outstanding as of Sept. 30. Advertised widely and sold directly to individuals by the company as a high-income alternative investment, the notes are not backed by collateral or insured.

Did Rite Aid Corp. make money in the spring for the first time in four years? Or did it continue its 16-quarter losing streak? The pharmacy chain based in Camp Hill, Pa., did both, according to the financial report it distributed yesterday for the three months ended June 1. Quarterly sales at Rite Aid's 3,600 stores rose to $3.9 billion from $3.7 billion a year earlier, adding an income-tax benefit of $44 million and subtracting $20...