Types of debt

what are the advantages of convertible debt to both the company and the investors?

3 Answer(s)


Advantages For Company: Issuing convertible bonds helps a corporation secure equity financing in a delayed manner, as it takes time for the bondholders to trade their bonds for stock. This process delays the common stock and earnings per share dilution.
Corporations can sell bonds at a lower coupon rate than a standard bond because of the stock purchase option.
For Investor:
A convertible bondholder can trade the bond for equity and achieve potentially high dividends should the company be performing well at the time of trade. If the company is not performing as well as desired, the bondholder has the security of a bond and the option of cashing in the bond at the maturity date


Simply put:
For the company: The paper work is less cumbersome than the common alternative which is establishing various class of preferred stock and contractual stockholder rights.

There is the issue of control of the company which is eliminated since the company is only trying to secure a debt which is to be paid back and not ceding control of the company.

For the Investor: The advantage is the right to be repaid, with interest.
Also, he has the right to foreclose on your assets if the debt isn't repaid within the stipulated time


To the company,interest on the debt amount will not be paid
To the investor, it can translate to shareholding of the company when converted