A debt instrument that is exchangeable at some point for equity in the form of common stock or a new issue.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A bond that must be converted into common stock in the company issuing it on or before a certain date. An advantage of a mandatory convertible to the investor is the fact that it guarantees a certain return up to the conversion date, after which there is no guaranteed return but the possibility of a much higher return. A publicly-traded company issues mandatory convertibles when it needs to raise the capital provided by issuing stock, but when doing so would put a strain on the price of existing shares.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved