Forbes (June 3, 1985) points out that companies wishing to protect their credit ratings and unwilling to issue more stock are raising capital by issuing hybrid securities. The article specif¬ ically mentions certain kinds of preferred stock issuances. REQUIRED:

a. What is a hybrid security? Explain why certain kinds of preferred stocks are considered to be hybrid securities.

b. How can a company protect its credit rating by issuing hybrid securities instead of bonds?

c. How can a company avoid violating a debt covenant by issuing hybrid securities instead of bonds?

d. How can a company avoid diluting its stock and inviting a takeover by issuing hybrid secu¬ rities instead of common stocks?