Convertible Bond - Structure and Features

Structure and Features

Like any typical bond, convertible bonds have an issue size, issue date, maturity date, maturity value, face value and coupon. They also have the following additional features:

• Conversion price: The nominal price per share at which conversion takes place.
• Conversion ratio: The number of shares each convertible bond converts into. It may be expressed per bond or on a per centum (per 100) basis.
• Parity (Conversion) value: Equity price × Conversion ratio.
• Conversion premium: Represent the divergence of the market value of the CB compared to that of the parity value.
• Call features: The ability of the issuer (on some bonds) to call a bond early for redemption, sometimes subject to certain share price performance. The intention is to encourage investors to convert early into equity (which has now become worth more than the bond's face value), by threatening repayment in cash for what is now a lower amount.
• Put features: The ability of the holder of the bond (the lender) to force the issuer (the borrower) to repay the loan at a date earlier than the maturity. These often occur as windows of opportunity, every three or five years and allow the holders to exercise their option to put for a certain number of days (30 days)