Trust-preferred Security - Disadvantages

Disadvantages

The principal disadvantages of trust preferred securities is cost. Because the trust preferred securities are subordinated to all of the issuer's other debt and typically have features like early redemption and optional deferral of interest payments, investors demand high interest rates. These rates will be much higher than ordinary senior debt or subordinated debt. Offering costs are high as well. Investment banks will take a large underwriting fee to sell the securities to the public, and legal and accounting fees will also be high. They have also been blamed for the failure of a few banks during the recent financial crisis.