Additional features[ edit ] Any convertible bond structure, on top of its type, would bear a certain range of additional features as defined in its issuance prospectus: Conversion price: The nominal price per share at which conversion takes place, this number is fixed at the issuance but could be adjusted under some circumstance described in the issuance prospectus e.
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Underlying stock split. You could have more than one conversion price for non-vanilla convertible issuances. Issuance premium: Difference between the conversion price and the stock price at the issuance. Conversion ratio: The number of shares each convertible bond converts into. It may be expressed per bond or on a per centum per basis. In some cases, for non-vanilla convertible bonds, there is no maturity date i. Final conversion date: Final date at which the holder can request the conversion into shares.
Might be different from the pune opțiunea pe obligațiuni date. Coupon: Periodic interest payment paid to the convertible bond holder from the issuer. Could be fixed or variable or equal to zero. Yield: Yield of the convertible bond at the issuance date, could be different from the coupon value if the bond is offering a premium redemption. In those cases the yield value would determine the premium redemption value and intermediary put redemption value.
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Convertibles could bear other more technical features depending on the issuer needs: Call features: The ability of the issuer on some bonds to call a bond early for redemption. This should not be mistaken for a call option. A Softcall would refer to a call feature where the issuer can only call under certain circumstances, typically based on the underlying stock price performance e.
A Hardcall feature would not need any specific conditions beyond a date: that case the issuer would be able to recall a portion or the totally of the issuance at the Call price typically par after a specific date.
Put features: The ability of the holder of the bond the lender to force the issuer the borrower to repay the loan at a date earlier than the maturity. These often occur as pune opțiunea pe obligațiuni of opportunity, every three or five years and allow the holders to exercise their right to an early repayment. Contingent conversion aka CoCo : Restrict the ability of opțiuni binare de numerar rapid convertible bondholders to convert into equities.
More recently some CoCo's issuances have been based on Tier-1 capital ratio for some large bank issuers. Reset: Conversion price would be reset to a new value depending on the underlying stock performance.
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Typically, would be in cases of underperformance e. Change of control event aka Ratchet : Conversion price would be readjusted in case of a take-over on the underlying company. There are many subtype of ratchet formula e. Make-whole base, time dependent ClubMed, to significant e. Aegis, Often, this clause would grant as well the ability for the convertible bondholders to "put" i.
Non-dilutive: The non-dilutive feature has been popularised with the lower interest rates e. In a non-dilutive placement, the issuer would simultaneously enter in an OTC option agreement with the underwriter or a third party. This option would often match the strike of the convertible as well as its maturity. This would result in cancelling out the dilution in case of a conversion of the convertible at maturity if the stock price is above the strike.
Typically, in order to fully prevent dilution the convertible prospectus would constraint possibility of early conversion. Structure and terminology[ edit ] Due to their relative complexity, convertible bond investors could refer to the following terms while describing convertible bonds: Parity: Immediate value of the convertible if converted, typically obtained as current stock price multiplied by the conversion ratio expressed for a base of Pune opțiunea pe obligațiuni also be known as Exchange Property.
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Bond floor: Value of the fixed income element of a convertible i. Premium: Defined as current convertible price minus the parity Exchangeable bond: Convertible bond where the issuing company and the underlying stock company are different companies e. This distinction is usually made in terms of risk i.
Synthetic : synthetically structured convertible bond issued by an investment bank to replicate a convertible payoff on a specific underlying equity e. Most reverse convertibles are synthetics.
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Please note the Packaged Convertibles e. Similarly, a replicated structure using straight bonds and options would be considered as a package structure. Markets and Investor profiles[ edit ] The global convertible bond market is relatively small, with about bn USD as of Janexcluding syntheticsas a comparison the straight corporate bond market would be about 14, bn USD.
Among those bn, about bn USD are "Vanilla" convertible bonds, the largest sub-segment of the asset class.
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This market is more standardised than the others with convertible structures being relatively uniform e. Regarding the trading, the American convertible market is "centralised" around TRACE which helps in terms of price transparency.
Most of the trading operation are pune opțiunea pe obligațiuni in New-York. Because of that lack of standardisation, it is often considered to be more technical and unforgiving than the American market from a trading perspective. A very tiny amount of the volumes is traded on exchange while the vast majority is done OTC without a price reporting system e. Liquidity is significantly lower than on the Northern American market. Trading convention are NOT uniform: French Convertibles would trade dirty in units while the others countries would trade clean in notional equivalent.
Most pune opțiunea pe obligațiuni the trading is done in Hong-Kong with a minor pune opțiunea pe obligațiuni in Singapore. It mostly shrunk because of the low interest environment making the competitive advantage of lowering coupon payment less appealing to issuers.
One key specificity of the Japanese market is the offering price of issuance being generally abovemeaning the investor would effectively bear a negative yield to benefit from the potential equity underlying upside. Most of the trading is done out of Tokyo and Hong-Kong for some international firms.
Convertible bond investors get split into two broad categories: Hedged and Long-only investors. Buying the convertible while selling the stock is often referred to as being "on swap". Hedged investors would modulate their different risks e. They would typically be exposed to the various risk.
Globally the split is about balanced between the two categories.