Issues With Convertible Bond
In financial circles, a convertible bond , also called convertible note or convertible bond, is a kind of bond that the holder is able to convert into some specified amount of shares of stock in the issuer or funds of equal worth. Often, it is quite similar to other forms of debt. For example, it has interest payments, maturity dates, credit rating, and payment penalties. It may even have redemption requirements. However, note holders are not entitled to vote in certain instances such as payouts of dividends and other common events of holder voting. There is also a convertibility element attached to it, whereby the price of the stock underlying the bond is the same as the price of the note. In short, we see two elements for convertible bond financing: debt and equity financing. The first one refers to the borrower converting his debt (the convertible bond) into some form of equity. For this, he must secure a loan (a secured loan) at a higher interest rate than his current debt (h...