Adjustment in Conversion Terms

adjustment in conversion terms

An alteration in the terms under which a convertible security may be exchanged. For example, if an issuer implements a two-for-one split (resulting in a doubling of the number of shares) in the common stock into which its convertible security may be exchanged, the issuer will nearly always be required to reduce the convertible's conversion price by half. Automatic price adjustments also may be scheduled throughout the life of a convertible security. Scheduled increases in the conversion price on specific dates would be an example of an automatic adjustment.

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Adjustment in Conversion Terms

A change in the conversion price of a convertible security. The conversion price is the price the holder of a convertible security pays in order to exchange the convertible for a common share. Following a stock split, for example, the price per share drops. This results in an adjustment in conversion terms to reflect the change in the value of a share. Some convertible securities have adjustments in conversion terms built into the terms of the security, regardless of whether or not a stock split occurs. See also: Conversion ratio.