Some preferred stock carries a provision that allows it to be converted into common stock. If the preferred stock is converted, it is retired.
Preferred stock may provide for a "mandatory" sinking fund with a specific amount to be set aside each year for retirement of the preferred stock at a specific sinking fund price. The existence of a Mandatory sinking fund does not mean that the preferred stock should be reported on the balance sheet as long-term debt, although according to the SEC, preferred stock with a mandatory sinking fund should be listed ahead of preferred stock without a mandatory sinking fund.
Refunding is the redemption of a bond by raising more funds through another bond that is issued to pay off the first bond. When a company conducts a refunding operation, it recalls its existing bonds from the market and sells the new bond. Refunding may be done because the bonds are nearing maturity or because interest rates have fallen. Refunding is not an option for the retirement of preferred stock.
Some preferred stock carries a call provision that allows the company to repurchase the shares for a specified price or at a specific time. Preferred stock that is repurchased is retired.
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