Public income notes (PINES) are unsecured, unsubordinated debentures issued by public companies. They are a type of exchange-traded note that trades on a stock exchange but also bears interest. PINES are also a type of preferred security and fall into the same category as quarterly income preferred securities (QUIPS), monthly income preferred securities (MIPS), trust certificates, and trust preferred securities.
Investors that hold PINES face lower levels of default risk because PINES are senior debt that take precedence over other loans or securities if the issuing company defaults.
PINES are sold to the public in small share amounts and pay fixed interest every quarter. The interest is tax-deductible.
PINES trade flat on the markets, meaning that the price does not include any accrued interest that isn’t included in the trading price.
PINES are preferred securities, similar to quarterly income preferred securities (QUIPS) and monthly income preferred securities (MIPS), all three of which have their own distinctions.
Because PINES are unsubordinated (also called senior debt), they have precedence over other loans or securities in the event that the issuing company should default. This means that an investor holding PINES faces less default risk than with subordinated debt (also called junior debt) because holders of unsubordinated debt are at the front of the line to be repaid.
However, because PINES are unsecured, they are not backed by any of the firm’s assets, which makes them riskier for investors than secured investments. PINES also have advantages to their issuers, including the tax-deductibility of interest payments.
PINES are typically sold to the general public in small share amounts, such as $25 or less per unit. The fixed specified quarterly interest payments attached to these instruments are redeemable at a value of par plus accrued interest at the option of the company after a specified period, usually five years.
PINES trade flat on the markets, meaning that the price does not include any accrued interest that isn’t included in the trading price. PINES typically rank equally with a company’s other senior unsecured and unsubordinated debt and rank senior to the preferred securities of the company.
Two examples of companies that issue PINES are GMAC Mortgage and General Electric Capital; the notes trade on the New York Stock Exchange.
Although PINES are often lumped together with MIPS and QUIPS, there are some key differences. QUIPS are hybrid, preferred-stock-like securities issued by a special purpose foreign or domestic LLC, which is usually a wholly-owned subsidiary of a U.S. parent corporation.
The LLC loans the proceeds to the parent, which uses the money to pay quarterly dividends to QUIPS holders. And because the LLC is a partnership, the full amount of the interest payments has to flow through to the QUIPS holders.
MIPS, which usually offer higher yields than other alternative investments, have the advantage of providing tax-related savings without raising the corporation’s debt ratio, which has consequently rendered them one of the more popular hybrid securities.
What Is an Income Note?
An income note is one of three types of structured notes, the other two being growth notes and principal protection notes (PPNs). Income notes have a specified coupon payment dependent upon the performance of the underlying asset.
What Is a Public Note?
A public note is a note that has been registered under the Securities Act of 1933 and that is most often senior and unsecured.