Convertible Bond

What is a Convertible Bond?

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

Reviewed By: David Bickerton
David Bickerton
David Bickerton
Asset Management | Financial Analysis

Previously a Portfolio Manager for MDH Investment Management, David has been with the firm for nearly a decade, serving as President since 2015. He has extensive experience in wealth management, investments and portfolio management.

David holds a BS from Miami University in Finance.

Last Updated:May 11, 2022

Convertible bonds are a security which is issued by a company as a means of raising money. They are essentially a combination of debt and equity. Convertibles are issued as bonds with an interest rate, principal and maturity, but the holder has the option of converting these bonds into an equivalent amount of equity in the company at a time of their choosing. If the owner chooses to convert these bonds, the debt issued on the convertible bonds is simply written off as the company is deemed to have paid them off with equity. Convertible bonds will have a given conversion price, and this is the price at which they will be converted into equity. For example, if a bond has a par value of $1,000 and the conversion price is $20, then if the share price of the company rises above $20 the bonds will be converted to create (1000 / Share Price) new shares outstanding. Convertible bonds must be taken into account along with possible shares created by options when calculating diluted shares outstanding for the purposes of Diluted Equity Value and Enterprise Value.


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