In a concurrent buyback, Petropavlovsk offered USD1,080 per USD1,000 of existing USD100 million 9.00%
convertible bonds due in 2020.
RH: Typically, a
convertible bond is issued between a three and seven year term-an average of a five-year lifetime for the option of the underlying share to go well and to convert with a profit.
HH: In summary, there is a lower coupon than on a straight bond, achieving a higher equity price than current levels if it is converted--these are the interesting aspects of
convertible bonds from a treasury perspective.
We account for credit risk in the spirit of the methodology in Jarrow and Turnbull [10], where the credit risk is described by the default probability and the recovery value of the
convertible bond by arbitrage-free valuation techniques.
Then the price process {[X.sub.t], 0 [less than or equal to] t [less than or equal to] T} of
convertible bond satisfies the following reflected BSDE with "obstacle" {[CP.sub.t], 0 [less than or equal to] t [less than or equal to] T}:
The results of the simultaneous equations analysis indicate that the significant impact of investor demand on
convertible bond issue volumes is robust to controlling for
convertible bond pricing.
Income received from a
convertible bond or preferred stock is subject to ordinary income tax rates.
Thompson, 1985, "Explaining Yield Savings on New
Convertible Bond Issues", Quarterly Journal of Business and Economics, 24:92-104
So when General Motors floated an innovative $17.6 billion bond issue--including a $4 billion chunk of so-called contingent
convertible bonds that will reinforce its pension plan--guys in the green eyeshades asked themselves: Is this a way to slay the pension monster?
However, Sweeney says there's a caveat: "Many convertible fund managers I've talked to say they are disappointed with some of the issues coming to market in recent months, so there could be somewhat of a drop-off in performance." That said, a
convertible bond fund investment with an experienced firm may provide some upside in a stock market that still has investors scratching their heads.
Convertible arbs have been among the top-performing hedge funds, gaining over 25 percent in 2000 and more than 6 percent in 2001's first quarter, according to the CSFB/ Tremont Convertible Arbitrage index, Credit Suisse First Boston estimates that half of all
convertible bond trades now come from hedge funds.
although it is too early to say that Japanese companies as a whole are leaning towards equity financing," said Michiro Naito, a
convertible bond analyst at Merrill Lynch in Tokyo.