Valuing TARP Preferred Stock
Posted: 10 Jul 2012 Last revised: 5 Dec 2012
Date Written: July 2, 2012
This is the only paper to provide a valuation framework for untraded Troubled Asset Relief Program (TARP) preferred stock. Up to $8.1 billion of bailout preferred stock, which is currently paying dividends, could be auctioned to investors. The first auction was held in March 2012. This paper provides a framework to estimate future dividend skipping rates and the rating of unrated and untraded preferred stock issues. It provides a valuation model for non-distressed issues. The model in the paper accurately predicted that the auction of MainSource Financial Group (MSFG) would raise about $53 million.
Keywords: auctions, bailout, banks, Capital Purchase Program, dividends, hybrid securities, preferred stock, private placements, ratings, TARP, Troubled Asset Relief Program, valuation
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation