A medium-term debt security that automatically turns into common stock at maturity. That is, rather than receiving back the principal, the holder exchanges the equity note for common stock. Before maturity, the equity note pays coupons like an ordinary debt security and has a higher priority than common stock in the event of the issuer's liquidation. An equity note combines the guaranteed return of a bond or other debt security with the potential for a higher return that comes with holding common stock.
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Intermediate-term debt that is automatically converted into common stock at maturity.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.