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- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
John Moffat.
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- May 7, 2017 at 3:56 pm #385213
Good evening Sir!
1. When convertible bonds are converted into equity there is a conversion premium.
who gets this premium? the company or the bond holder?
2. Loan notes with warrants: the holder of such a bond will have to pay for the shares, if he decides to convert. Correct?
how does it work? does the holder encash the loan note and then use the money to buy the shares? or he coughs up the cash to buy the shares and then wait for the redemption of the loan note to get back his loan amount ?
regards
May 7, 2017 at 7:38 pm #3852411. Nobody gets the premium! It is simply the difference between the current market value of the bonds and the current value of the shares that they can ultimately be converted to.
2. Warrants do not involve converting. As far as the bonds are concerned, they carry on as normal – paying interest and being repaid on the due dates.
The warrants give the owner of the bonds the right to buy shares at a fixed price. When the due date for exercising the warrants comes then it is up to the holder whether to buy the shares at the fixed price (which they will do if the actual share price by then is higher) or to simply throw away the warrant (which they will do if the actual share price by then is lower). - AuthorPosts
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