When can a convertible bond be converted?
The transformation of convertible bonds into shares of stock is usually done at the discretion of the bondholder. When a company exercises a right to redeem or call a convertible bond, it can force the conversion of convertible bonds to stocks.
What can convertible bonds be converted to?
A convertible bond is a fixed-income corporate debt security that yields interest payments, but can be converted into a predetermined number of common stock or equity shares. The conversion from the bond to stock can be done at certain times during the bond’s life and is usually at the discretion of the bondholder.
Who has right to convert convertible bonds?
the issuing company
One downside of convertible bonds is that the issuing company has the right to call the bonds. In other words, the company has the right to forcibly convert them. Forced conversion usually occurs when the price of the stock is higher than the amount it would be if the bond were redeemed.
Is convertible debt good or bad?
Convertible bonds offer lower interest rates than comparable conventional bonds, so they’re a cost-effective way for the company to raise money. Their conversion to shares also saves the company cash, although it risks diluting the share price.
Does convertible debt have covenants?
Do convertible notes generally include restrictive covenants? Convertible notes generally do not include any significant operating or financial covenants.
What is a convertible debt round?
A Convertible Debt Round enables a Founder to raise money, without the need to set an exact valuation. Instead, the Founder and Investor agree a Valuation Cap and/or a Conversion Discount. Also, the convertible debt round can be left open for some time, enabling investors to invest over a period of time
What is the conversion discount in a convertible note?
The Conversion Discount or Price Cap. As a sweetener to the convertible debt investor, convertible promissory notes have a conversion discount feature by which the convertible debt holder will exchange the debt for Qualified Securities at a price per share equal to 80\% (this amount can very per deal) of the price per share paid by
What are the benefits of convertible debt for startups?
Convertible debts give the debt holder the option to convert the convertible debt instrument to common equity shares of a company at maturity. This allows startups to generate funds while the debt holders are provided with more security and lower risk as compared to equity instruments.
How much does a seed investor invest in convertible debt?
A seed investor invests $500k into a Convertible Debt round with a Conversion Cap of $4M and a Conversion Discount of 15\% Example 1: a VC invests $2.5M on a pre-money valuation of $5M First, we work out which valuation to use. The lower of: So we use the Conversion Cap valuation of $4M to convert