The Financial Times has a very cool article on financial engineering and the development of securities that combine debt and equity-like features.
FT.com / Home UK - Banks hope to cash in on rush into hybrid securities: "Securities that straddle the debt and equity worlds are not new. They combine features of debt such as regular interest-like payments and equity-like characteristics such as long or perpetual maturities and the ability to defer payments."
"About a decade ago, regulated financial institutions started issuing so-called trust preferred securities, or Trups, which are functionally similar to preferred stock but can be structured to achieve extra benefits such as tax deductibility for the issuing company. Other hybrid structures have also been tried.
But bankers were still searching for what several called the “holy grail” – an instrument that looked like debt to its issuer, the tax man and investors, but like equity to credit rating agencies and regulators.
That goal came closer a year ago when Moody’s, the credit rating agency, changed its previously conservative policies, opening the door for it to treat structures with some debt-like features more like equity."