ShmoopTube

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

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

Full Transcript