| A convertible bond is a kind of bond, which can be | | | | basic structure, as per convertible bonds. As it is, the |
| converted into the shares of the stock in an issuing | | | | following are a few variations in regard to convertible |
| company, generally at a certain pre-announced ratio. | | | | bonds: |
| This is a hybrid security, featuring debt and equity | | | | 1. Mandatory convertibles |
| like characteristics. Now, although it usually has a | | | | Mandatory convertibles refer to short duration |
| lower coupon rate, the holder gets compensated | | | | securities, usually with higher yields than that found |
| with the availability of converting the bonds to | | | | over the underlying common shares, which are |
| common stock, generally at a substantial rate of | | | | mandatorily convertible at the time of maturity in a |
| discount to the market value of the stocks. | | | | predefined number of common shares. Mandatory |
| If we take into account the perspective of the | | | | convertibles are the ones, which only allow an |
| issuer, the major benefit of raising funds by way of | | | | investor to convert bonds into stock, in case the |
| selling the convertible bonds is in respect to a | | | | price of the share is a certain percentage over the |
| decreased payment of cash interest. However, in | | | | conversion price. |
| return for this benefit of decreased the payment of | | | | 2. Exchangeable |
| the interest; the value of the equity of the | | | | An Exchangeable bond is the one, which might be |
| shareholder gets decreased due to the dilution of the | | | | converted into shares different from those of the |
| stock expected in case the bondholders change their | | | | issuer. As it is, they are not convertible bonds; |
| bonds into shares. | | | | however, they share a few usual evaluation |
| As it is, the convertible bond markets of the United | | | | characteristics. |
| States, as well as Japan, have been of major global | | | | 3. Vanilla convertible bonds |
| importance. As a matter of fact, these two markets | | | | Vanilla convertible bonds refer to bonds that might |
| are the biggest in regard to market capitalization. The | | | | be converted at an option of an owner into shares |
| other convertible bond markets are quite often illiquid, | | | | of the issuer, generally at a predetermined rate. |
| and the pricing is usually non-standardized. | | | | These may or may not get redeemed by an issuer, |
| Just like any usual bond, convertible bonds come with | | | | much before the final maturity date, in regard to a |
| a maturity date, a maturity value, an issue size, an | | | | few, share price performance conditions. |
| issue date, a face value and a coupon. They also | | | | Convertible bonds play a very important role in the |
| come with a few additional features, like conversion | | | | finance of a firm. As a matter of fact, convertible |
| price, conversion ratio, Parity value, conversion | | | | bonds bestow an investor with the benefits of both |
| premium, call features, etc. | | | | bonds as well as equities. |
| There have been several variations, in regard to the | | | | |
