adjustment in conversion terms

Adjustment in Conversion Terms

A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split.

Notes:

In some convertibles, an adjustment in conversion terms is a scheduled event. Otherwise, these adjustments are made in order to ensure that the holder of the convertible remains unaffected by any related changes.

For example, if a convertible security CBC has an exchange privilege of 1 common for $50, and the common share of CBC splits 2 for 1, then the exchange ratio will be adjusted to 1 common for $25.

See also: Conversion Price, Convertible, Stock Split

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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.