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 ?
Therefore, our results suggest that agency conflicts between bondholders and stockholders and information asymmetries between incumbent stockholders and new investors both play a prominent role in a firm's decision to issue convertible debt but not for the same set of firms.
Convertible debt holders of EuroSite Power have converted approximately $3.
Non-cash convertible debt discount related to change in accounting for an outstanding convertible subordinated note
When does it make sense to escalate the investment, or convert warrants or convertible debt to a majority equity position?
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.
The primary objectives of this paper are to update several widely cited, but dated, studies in order to understand why firms have issued convertible debt in recent years; and to explore the relationship between observed market reactions to the use of convertible debt and the stated motivations for its use.
successfully closed the transactions contemplated by a convertible debt securities purchase agreement on February 24, 2010, for approximately $3 million.
Our team also negotiated a settlement with the previous owners of one of our communications subsidiaries that resulted in reducing the preferred convertible debt instrument from $9 million to $4.
The gain on derivative instruments of approximately $2,325,800 for the year ended September 30, 2006 was the result of several factors: 1) a decrease in the value of the stock between the date of the issuance (August 2006) of the Series K convertible debt and September 30, 2006 resulted in the biggest part of the gain (approximately $2,311,000), 2) reclassification to equity of all previous derivative instruments (approximately $13,300), and 3) expiration of the Series E warrants (approximately $1,500).
That makes the sale of convertible debt cheaper, since investors will take a lower interest rate if they believe they have a lot of upside potential in the stock.
Advant-e Corporation (BULLETIN BOARD: AVEE) , a provider of Internet-based business-to-business electronic commerce services, today announced that one of the largest investors in its 15% convertible debt has opted to convert $250,000 into Advant-e common stock according to the terms of the September 27, 2001 agreement at $1.

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