What Are Quarterly Income Debt Securities (QUIDS)?
Quarterly Income Debt Securities (QUIDS) are tradable debt instruments that pay a quarterly coupon.
Key Takeaways
- Quarterly Income Debt Securities (QUIDS) are tradable debt instruments that pay a quarterly coupon.
- QUIDS were established by Goldman Sachs, which established a service mark for that name in 1993.
- QUIDS are sold in small denominations, but have a long lifespan before maturing.
- Companies typically issue QUIDS through a subsidiary, which allows QUIDS holders to move ahead of other creditors and shareholders in the event of bankruptcy.
Understanding Quarterly Income Debt Securities (QUIDS)
Quarterly Income Debt Securities (QUIDS) generally involve senior unsecured debt issued in small denominations with long maturities. Investors could expect a common issuance of QUIDS to have a $25 par value per share, maturing in 30 years, and callable after five years, for example.
Goldman Sachs originally established the product and registered a service mark for their name in 1996. However, their trademark was cancelled in 2003.
The debt issued via QUIDS involves a third-party issuer, usually created as a subsidiary of a parent company for the sole purpose of issuing debt and loaning the proceeds to the parent. Issuers use this structure to move shareholders of QUIDS ahead of other creditors in any bankruptcy or other liquidation proceeding, mitigating shareholder risk. Preferred stock and hybrid debt securities that mimic the behavior of preferred stock offer similar benefits. However, QUIDS coupons represent interest payments for tax purposes, and their shareholders typically take priority even over holders of preferred securities.
In the event of issuer bankruptcy, QUIDS holders are paid out before holders of other securities.
Senior and Subordinated Debt
Debt securities offer investors a tradable unit of a debt instrument that, aside from special cases like zero-coupon bonds, generally offers a fixed income stream via a periodic interest payment. The primary risk for holders of debt instruments takes the form of default, where the debt issuer fails to make contractually obligated payments of interest or principal. Investors generally balance risk against the amount of profit they expect to make from interest payments over the course of a debt issuance, requiring a faster or larger return to compensate for a riskier loan.
Companies may also attempt to lower their cost of borrowing by issuing different kinds of debt based upon a creditor’s priority in any liquidation or bankruptcy proceedings. Subordinated debt lies at the bottom of the priority list, meaning holders of subordinated debt get paid only after those who hold senior debt receive their payments.
Similar Debt Instruments to QUIDS
Quarterly Income Preferred Securities (QUIPS) and trust preferred securitieso (TruPS) offer investors similar benefits to QUIDS in the form of regular payment on a preferred security. QUIPS feature a structure similar to QUIDS, except that the subsidiary lending money to the parent issues its own preferred stock to investors. Companies that issue TruPS form a trust rather than a subsidiary corporation. Investors then receive preferred shares of the trust.
All three securities resemble one another superficially, but each type of security has subtle differences that may or may not match an investor’s expectations. Issuing companies may prefer the tax treatment afforded to one structure or another and decide which type of security to issue accordingly. Investors should always do their homework and be aware of where they sit in the hierarchy of potential creditors, as well as any potential issues with the issuer’s solvency.
How Much Is a Quid?
A quid is a colloquial term for the British pound sterling. As of July, 2023, the value of a quid is equal to approximately $1.30 USD.
What Is Quid Pro Quo?
Quid Pro Quo is a Latin phrase that literally means "something for something," suggesting an implied agreement to exchange one service or favor for another. This may be required in certain business contexts, since courts may strike down a contract that does not include equal considerations. Quid pro quo agreements are also common in politics, although they sometimes suggest shady or unethical business dealings.
What Is Quid Pro Quo Harassment?
Quid pro quo harassment is a form of workplace harassment where unethical requirements are placed as a condition of professional advancement. In cases where the requirements involve romantic or sexual behaviors, this is also a form of sexual harassment. Sexual harassment is illegal in the United States, Canada, and many other countries.
The Bottom Line
QUIDS, or Quarterly Income Debt Securities, are a type of debt instrument that pays interest on a quarterly basis. These debt securities are structured so that they are more senior than other holders of the same company's securities, meaning that in the event of bankruptcy, QUIDS holders will be paid out sooner than other creditors.
