What does it mean for preferred equity holders in a participating preferred structure?

In a participating preferred structure, preferred equity holders are positioned above common equity holders in terms of payout priority. This means that when a company is liquidated or when distributions are made, the participating preferred holders will receive their payments before any funds are distributed to common equity holders. This is a key feature of preferred equity, as it provides a level of security and priority in payouts that common equity does not enjoy.

Furthermore, participating preferred equity often allows holders to participate in additional upside beyond their fixed dividend, hence they can benefit from residual profits alongside common equity holders once their preferred payouts have been satisfied. This participation typically takes place after the preferred claim has been fully honored, further emphasizing their subordinate position relative to the common stockholders concerning both payout and risk.

The other options presented represent aspects that do not align with the characteristics of participating preferred equity. For instance, common equity holders rank below preferred equity holders, and holders of participating preferred equity typically have some claim to upside gains after their guaranteed payments have been made. They usually benefit from set returns as well, further distinguishing their position from that of common equity holders.