Preferred shares are technically an equity security, however, they do possess some characteristics similar to debt and can therefore be labeled quasi debt. Preferred shares have a fixed rate dividend similar to a debt instrument however, unlike debt, payment ultimately rests at the discretion of management and failure to pay dividends will not force a company into default. However, dividends to preferred shareholders must be paid out prior to any distributions to holders of common shares and in most, if not all, preferred share issues there is a stipulation that any missed dividend payments to preferred shareholders be cumulative and must be paid out in full before other payments to shareholders. In case of default, holders of preferred shares are junior to debt holders, but senior to ordinary equity shareholders.