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Dear Sir, could u explain on the answer for disadvantage for conversion loan notes?
ANS : The shareholders may also have reservations about the loan note holders having the option to redeem if Tippletine Co’s share price is low. This reduces the risk of providing the finance from the loan note holders’ viewpoint. However, if the share price is
low, Tippletine Co’s financial results and cash flows may be poor and it may struggle to redeem the loan notes. Shareholders may also be concerned that there is no cap the other way, allowing Tippletine Co to force conversion if the share price reaches a high enough level.If the loan note holders opt for redemption then the company will have to pay out cash. If the share price is low then this might likely be because the company is doing badly in which case they might not have enough cash.
If the share price increases then the more it increases the better it is for the loan note holders. Better would be to be able to force them to convert if the price gets to a certain level.
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