Prior planning for issuance of Preferred stock, something happens in every organization.
- Plan to restructure organization.
- List of assets, which could be sold off and what could be held.
- Employee restructuring. often happens :)
- Operations restructuring, if required.
- identification of additional investment needed areas, which could bring the needed revenue to organization like R&D or services or
advertising or new plants or new machinery.
The above listed activities give a rough picture on how much new money is needed, depending on that, The company goes for issuance of preferred stock. This new plan needs approval from analysts (depends on stock market). The new plan along with the audited reports, is submitted to SEC for approval, so they could go for issuance of preferred stock.
People/Organizations who buy these preferred stock would check the above list and invest ONLY if they believe its feasible. This info is also made available to the general share holders too.
(Some of the above points might not be applicable in some markets, but generally, this is how it is done.)
Issuance of preferred stock generally means, the board / CEO has done the required homework and identified areas which need changes. Now, they would be using new cash to implement these changes, which should add value to the retail investor too, so the price should go up.
I have seen some companies default and go for restructuring intentionally, cuz their organizations are heavily troubled by Unions, which wont let them make significant changes when the company had cash in hand. So they let the company fail and then do a restructuring. Few Italian companies have done it i guess.