The value of preferred shares will likely go up if a company’s credit rating is downgraded by Moody’s.?

The value of preferred shares will likely go up if a company’s credit rating is downgraded by Moody’s.

The value of preferred shares will likely go up if a company’s credit rating is downgraded by Moody’s.?
Preferred ARE traded on the market exchanges, but no, a credit downgrade will generally cause the share prices to fall.





However, if you don't currently own any share %26amp; the downgrade occurs, and the share price drops, then you can buy them at this lower price %26amp; get a higher dividend yield. This is a good thing, unless more downgrades are forthcoming.





You don't want to own a piece of debt issued by a company that is in downward spiral.
Reply:Dear God no! Preferred shares do not trade on the market. They are a hybrid between common shares and bonds...so they are a debt instrument receiving dividends (though it is NOT guaranteed) and they get first dibs in liquidation of the company's assets over common stock. So if a company gets a downgrade from Moody's, they value of their existing debt instruments are not as in demand because the credit risk is higher.


So this doesn't make sense.


When Moody's or S%26amp;P give a downgraded rating, the Company finds it harder to attract investors to purchase their Debt Instruments. So a company would then increase the Interest Rate on their future debt instruments in order to attract other investors...which sucks for the Preferred Shareholder, as their dividend rate will be lower than that of the new issuance. Now unless there is a convertibility option for the Preferred Stock, it would suck to own them.


So, if this is a true of false question....I am saying false. The demand for these instruments would NOT go up with the downgrade; especially since their dividends are fixed.
Reply:No. If the company is having trouble paying its bills, the preferred stock dividends are in jeopardy.