Examples
- A convertible bond is a bond (i.e. a loan to the issuer) that can be converted into common shares of the issuer. A convertible bond can be valued as a combination of a straight bond and an option to purchase the company's stock.
- An income security is a hybrid between a stock and a bond. The bond portion pays interest, and the stock portion pays dividends. Income securities are popular in Canada.
- A PIK loan may carry a detachable warrant (the right to purchase a certain number of shares of stock or bonds at a given price for a certain period of time) – the loan is the debt (Bond), while the warrant is the equity
- The important hybrid instruments are:
- Preference shares
- Convertible/exchangeable debentures/bonds
- Debt with attached warrants
Read more about this topic: Hybrid Security
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