Convertible bond

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Convertible bond

General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.

Convertible Bond

A bond that a bondholder may exchange, at a certain price, for common stock in the company issuing the bond. The number of shares one receives for each bond and the price one pays for those shares are determined when the convertible bond is issued. A convertible bond is a low-risk investment, but it affords the investor a great amount of leeway because he/she can exchange it for another security with higher risk and a higher return. Certain convertible bonds may only be exchanged at certain points in their lives. The extent to which bondholders exchange convertible bonds is sometimes seen as an indication of whether the share price is overvalued or undervalued. See also: Busted convertible, Overhanging bond, Convertible preferred stock.

Convertible bond.

Convertible bonds are corporate bonds that give you the alternative of converting their value into common stock of that company or redeeming them for cash when they mature.

The details governing the conversion, such as the number of shares of stock you would receive, are set when the bonds are issued.

A convertible bond has a double appeal for investors. Its market value goes up if the stock price rises, but falls only to what it would be as a conventional bond if the stock price falls. In other words, the upside potential is considered greater than the downside risk.

While convertible bonds typically provide lower yields than conventional bonds from the same issuer, they may provide higher yields than the underlying stock.

You can buy convertibles through a broker or choose a mutual fund that invests in them.

References in periodicals archive ?
The company will receive proceeds from the convertible debt in seven tranches, with the initial tranche being USD710,000, followed by six subsequent tranches of USD250,000 each.
Jensen and Meckling (1976), Mikkelson (1978), and Green (1984) argue that convertible debt can be used to protect bondholders against the opportunistic behavior of shareholders.
When does it make sense to escalate the investment, or convert warrants or convertible debt to a majority equity position?
In this paper, we show that callable convertible debt is more useful in controlling managerial opportunism than are common debt and equity.
The research documents several results about investor reaction to the announcement of convertible debt security offers.
The financial statement restatement is in respect to the accounting treatment specified in FASB Staff Position (FSP) Accounting Principles Board Opinions (APB) 14-1, Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1), accounting guidance now codified as FASB Accounting Standards Codification (ASC) Topic 470-20.
Regenerative therapies company Cytomedix (Other OTC:CMXI) said on Thursday that it has closed the second tranche for gross proceeds of USD26m under its convertible debt financing with certain investment funds managed by Deerfield Management Company.
The financing has been structured in the form of a one year (non-listed) convertible debt instrument that is convertible into Pharming shares at EUR0.
Convertible debt is also more widely used than it is with fundamental deals, leading CFOs to fret about paying off PIPE investors before equity holders during insolvency.
Holders of a contingent convertible debt instrument, however, must accrue OID into income at the higher yield without receiving cash payments, regardless of their accounting method.
Convertible debt continues to be a significant source of capital for U.
A company issues convertible debt that may be converted into a fixed number of common shares.

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