A preferred (preferred security) that, as a form of hybrid security (a hybrid investment instrument), represents a debt issued by a trust/ SPV (formed by a BHC, bank holding company) . A trust preferred (TruPS) is created by establishing a trust that will be responsible for issuing preferred securities associated with a debt deposited in the trust. In other words, the issued securities are different from the debt.  TruPS typically pay a quarterly dividend, are redeemable by the issuer (with an embedded call option), and are usually long term securities.

Such securities allow banks and financial institutions to apply, and get advantage of, specific tax and regulatory capital treatments. The trust’s sole asset is a low-ranking subordinated note/ junior subordinated note (the debt) issued by the bank (BHC). The subordinated note is senior bank’s common equity and preferred stock, and typically has terms that generally correspond to those of the trust preferred securities, except maturity which is shorter for TruPS.

Dividends of TruPS can be deferred for a 24 quarters or more, as stipulated in their terms and conditions, without triggering an event of default or acceleration. In which case, the dividends accumulate to date. However, failure to pay any cumulative dividend amount owed to security holders would trigger an event of default and acceleration, giving security holders the right to seize the subordinated note. Concurrently, acceleration occurs, whereby a bank would be forced to settle its obligation- i.e., to repay principal and pay interest on the underlying junior subordinated note.

Although normally taxed as debt, TruPS also form part of the capital of a bank (typically, tier 1 capital).