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A concertible bond issue that investors do not convert into common stock because the stock has not appreciated in value.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A convertible bond whose bondholders do not exercise the convertible option to turn it into common stock because it is currently trading at too low a price. Overhanging bonds therefore act like normal debt securities. This is considered a low risk investment with the possibility of high return, because an overhanging bond usually has a fixed return, and there is a small chance that the stock will recover, allowing the investor to exercise the convertible option. See also: Busted convertible.
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