Busted Convertible Security

Busted Convertible Security

A convertible security that is trading well below its conversion value. The result is that the security is valued as regular debt because there is very little chance that it will ever reach the convertible price before maturity.

Notes:

Basically this is a convertible that is now a non-convertible because the convertible price is 50% or more above the current share price. Some investors have found success in trading busted convertibles. While the possibility of converting into stock is usually remote, busted converts usually trade at prices and yields very close to other nonconvertible debt (so you don't compromise returns). Meanwhile, if by chance the stock rebounds, the bond could become extremely valuable.

See also: Common Stock, Contingent Convertible, Conversion Price, Convertible Preferred Stock, Convertible Bond Convertibles, Mandatory Convertible