convertible security

(redirected from Convertible Securities)
Also found in: Dictionary, Thesaurus.
Related to Convertible Securities: warrants, Convertible Shares

Convertible security

A security that can be converted into common stock at the option of the securityholder; includes convertible bonds and convertible preferred stock.

Convertible Security

A bond or preferred stock that may be exchanged for common stock in the company issuing the exchangeable security at a certain ratio and/or a certain price. A convertible security gives the holder a great deal of flexibility. It reduces risk by guaranteeing a coupon payment or dividend while also allowing the holder to take advantage of a potentially larger return through the ability to convert the security to common stock. It is less commonly called an exchangeable security. See also: Convertible Option.

convertible security

A security that, at the option of the holder, may be exchanged for another asset, generally a fixed number of shares of common stock. Convertible issues frequently are fixed-income securities such as debentures and preferred stock. Their prices are influenced by changes in interest rates and the values of the assets into which they may be exchanged. Convertible securities vary in price to a greater degree than straight debt but to a lesser degree than the underlying asset. Also called convertible. See also bond conversion, busted convertible, conversion premium, conversion price, conversion ratio, conversion value, mandatory convertible security.
Case Study Convertible securities sometimes sport unusual features that can make these investments difficult to evaluate. In July 2001 Norvellus Systems, a manufacturer of semiconductor production equipment, issued unrated zero-coupon bonds convertible into shares of the firm's common stock at a price of $76.36 per share, a 50%premium to the market price. Zero-coupon debt securities are popular with many borrowers and investors, so the lack of a coupon on the issue was not especially unusual. The unique feature was the issue price of the bonds, which were sold at face value rather than a discount to face value. Virtually all zero-coupon bonds are issued at a discount to par value, thus attracting buyers who are assured of earning a positive return in the event the securities are held to maturity. To attract investors to this unique bond Norvellus agreed to allow bondholders to redeem their securities at par value at the end of one year. In other words, buyers of the securities were guaranteed they would be able to recoup their original investment at the end of a year if they were unhappy with the firm's stock price performance. During the first year Norvellus invested proceeds of the bond issue in U.S. government securities. The government securities collateralized its bonds and allowed the firm to earn interest income at the same time it was not paying interest to bondholders who had purchased the firm's debt. Holders of the convertibles who decided not to redeem the bonds at the end of the first year held a debt security that could be converted into common stock but paid no interest.
References in periodicals archive ?
"Whilst we understand that this funding is more complex than a straight equity raise, it is, we believe, funding that is highly competitive when compared to an equity placing at the current share price, with the investment carrying no interest and being issued at a 7.5% discount, and the price at which Bergen is able to convert the convertible securities determined by reference to Quadrise's future share price performance."
Vendor: First Trust SSI Strategic convertible Securities ETF
Sovereign Gold and Bergen may increase the purchase price and the face value of the subsequent Convertible Securities to up to $1,000,000 and $1,100,000 respectively, each.
The lender said its board had decided to issue e1/465 million worth of common shares and e1/464 million in convertible securities.
“Bob and Paul bring a combined 40 years of experience investing in convertible securities to Cutler's investment team,” said President David Grenier.
* Convertible securities may be either bonds or preferred stocks.
The Indian company would issue the convertible securities to JFE in the next couple of months after its board and shareholders approve the proposal.
In the interest of international convergence, this specifically addresses the computation of incremental shares under the treasury stock method, the earnings-per-share effect of mandatorily convertible securities and the earnings-per-share effect of instruments that may be settled in cash or shares.
Convertible securities are hedge-type instruments that allow investors to enjoy much of the upside potential of a riskier investment while bearing the smaller downside risk more commonly associated with investments offering less upside potential.
Schmidt, 2003, "Convertible Securities and Venture Capital Finance", Journal of Finance, 58:1139-1166
Are warrants, rights, options, and convertible securities considered "beneficial ownership" either in whole or in part?
Convertible securities are stock-bond hybrids that usually offer current income and can be converted into stock.