Debentures or Shares Convertible Bonds

Debentures or shares convertible bonds usually offer a more reduced type of interest to the investor, but in exchange it offers them the choice of changing their securities for shares of the company. Also, at the moment of conversion debentures or shares convertible bonds are exchanged at a reduced price. The price of the shares are usually calculated starting from the average quotation in a determined prefixed period.

Usually, debentures and bond investors are offered more than one opportunity for converting their securities into shares. Reduction of prices done with shares to make them more attractive for the conversion is usually between 5 and 20%.

Not to damage the current shareholders, the issuing company always offers them the preference to acquire debentures or convertible bonds, he has the possibility to maintain them until their expiration in exchange of the periodical interests, or well, to exchange them for shares in some of the conversion options.

In the first case, it is an investment in fixed interests during the active life of the security. In the second case, at the moment of conversion the investment in fixed interests will become an investment in variable interest. In this way, the investor may benefit from the good work of the company. For the issuing company, conversion give them the possibility of changing debt into capital. Also, interests from debentures and bonds are usually lower than that of the market. So in case the investor does not accept the conversion the company will finance itself with cheap debt.