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Finance: What is Forced Conversion? 59 Views
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Description:
Forced conversion: the idea that the issuer of a bond has the right to force the conversion of that bond into common stock.
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Transcript
- 00:00
Finance allah shmoop what is forced conversion Okay this is
- 00:08
forced conversion Yeah this is also forced conversion and so's
- 00:14
this Yeah that is the issuer of this particular bond
- 00:19
Like the company who borrowed money has the right as
- 00:22
described in the indenture to force you to convert the
Full Transcript
- 00:25
bond either into and say twenty five shares of common
- 00:28
stock or something else Which sort of implies that a
- 00:31
stock price the over under price of breaking evens about
- 00:34
forty bucks a share takes you get that thousand dollars
- 00:37
divided by the twenty five shares Think it's you forty
- 00:39
bucks a share or the issuer or company who sold
- 00:43
the bond in the first place can simply call the
- 00:45
bond and force converted into cash for the small conversion
- 00:49
premium of ah two point five percent or that's twenty
- 00:52
five bucks in this thousand dollars par value bond So
- 00:57
in this sense essentially the break even Numbers actually 41
- 01:00
dollars a share not forty there because you get an
- 01:03
extra little premium bump there if they force you to
- 01:05
convert the bond or debt into equity Got it We'll
- 01:08
force conversion in a bond sense is usually something cos
- 01:12
do when they can either refinance the bond at cheaper
- 01:15
interest rates or are doing so well operationally that they
- 01:19
have enough cash Teo just retire their debt They call
- 01:22
it back They buy it back save the interest charges
- 01:24
and quick cash toe work doing something else Either way
- 01:27
it's usually weigh less painful than the other flavour of 00:01:30.926 --> [endTime] forced conversion
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