Zero-coupon convertible bond

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Zero-Coupon Convertible Bond

1. A bond that may be converted into common stock in the company issuing it. A zero-coupon convertible bond is sold at a discount from par and matures at par. They tend to be volatile in the secondary market because the convertible option may or may not become worthwhile, depending on how the company is performing. Additionally, like all zeros, they can fluctuate in price, sometimes dramatically, with changes in interest rates.

2. A municipal bond that may be converted into a corporate bond in the company issuing it. A zero-coupon convertible bond is sold at a discount from par and matures at par. They tend to be volatile in the secondary market because the convertible options may or may not become worthwhile, depending on how the companies they represent are performing. These zero-coupon convertibles are tax-exempt, but are convertible to other bonds that may yield more.

Zero-coupon convertible bond.

A zero-coupon convertible bond, like other convertible bonds, can be converted into stock in the issuing corporation if the stock reaches the trigger price.

Municipalities may issue tax-exempt zero-coupon convertible bonds you can exchange before maturity for conventional taxable bonds.

The advantage of both taxable and tax-exempt zero-coupon convertibles is that they give you access to a potentially substantial gain for a small initial investment since you purchase the zero-coupon for less than the face value. But like all zero-coupons, these convertibles tend to be more volatile in the secondary market than nonconvertible bonds.

References in periodicals archive ?
3m) zero-coupon convertible bond of Taiwan-based Taichung Commercial Bank (TPE:2812).
30, 2006 holders of approximately $317 million of the company's Exchange Zero-Coupon Convertible Senior Subordinated Notes due 2022 exercised their put option.
30, 2006 holders of approximately $317 million of the HMA's exchange zero-coupon convertible senior subordinated notes due 2022 exercised their put option.
30, 2005, and consisted primarily of $500 million 1% convertible subordinated notes due 2010, approximately $400 million 6 1/2% senior subordinated notes due 2013, approximately $462 million 6 1/4% senior subordinated notes due 2014, and $195 million zero-coupon convertible junior subordinated notes due 2008.
8 billion as of June 30, 2005, and consisted primarily of: $500 million 1% convertible subordinated notes due 2010; approximately $400 million 6 1/2% senior subordinated notes due 2013; approximately $507 million 6 1/4% senior subordinated notes due 2014; and $200 million zero-coupon convertible junior subordinated notes due 2008.
The company has reduced debt over the past year by repurchasing approximately $180 million accreted value of zero-coupon convertible debentures due 2021 (putable in February 2006) through a series of open market transactions.
The Company will have access to the full $500 million revolving credit facility if, by the end of January 2005, Sanmina raises a specified amount (currently $300 million) of additional debt or equity capital and uses or sets aside these proceeds to repay approximately $630 million accreted value of zero-coupon convertible subordinated debentures that will be putable to the Company in Sept.
While Fitch believes Arrow's maturities are manageable, approximately $360 million of the aforementioned zero-coupon convertible debentures due 2021 are putable in 2006 and approximately $200 million 7% senior notes are due in 2007.
During 2003, the company utilized free cash flow and proceeds from the June 2003 debt offering to repurchase approximately $60 million face value of its 7% zero-coupon convertible notes due 2020 as well as $8 million of its senior notes that were due October 2003.
Earnings per share for the third quarter were reduced by 2 cents due to the dilutive impact of the company's zero-coupon convertible notes, which became convertible for the first time at the end of the third quarter of 2003.
The rating action acknowledges Horton's improved financial profile due to the company's recent conversion of zero-coupon convertible notes into common stock, as well as management's commitment to lower leverage levels and its focus on an organic growth strategy.
Going forward, debt levels are anticipated to decline as Avon redeems its $450 million zero-coupon convertible notes, refinancing a portion of this issue with the new $250 million issuance.