What are some differences between debt-with-warrant financing and convertible debt?

Jump to Solution
Category:

What are some differences between debt-with-warrant financing and convertible debt?

0
0

What are some differences between debt-with-warrant financing and convertible debt?

Explanation & AnswerSolution by a verified expert

Explanation

Debt-with-warrants as a hybrid security are really two separate securities: the debt and warrants. The interest and principal of the debt security is still collectible regardless of whether the warrants are exercised. A convertible bond is a single security with a convertible feature. If a convertible bond is converted into stocks, the interest and principal of the bond are no longer collectible, because the bond is now terminated in lieu of the stocks.

Sample Response

Convertibles and debt-with-warrant as a form of financing differ in the following ways:

Warrants can be separated from the main security, while the conversion feature cannot be separated from the main security.
The exercise of warrants will result in issuance of new shares without extinguishing the main security, while a convertible by converting to common shares replaces the original security.
Warrants have shorter maturity than convertibles, and convertibles may have a call provision unlike warrants.
Convertibles have lower underwriting costs than debt-with-warrants.

Purchase this answer to view it. $5
Login/Sign up for free, load your wallet instantly using PayPal or cards and purchase this solution to view it.

Looking for the solution to this or another homework question?

If you need essay writing assistance or homework solutions, log in or sign up for a free account and ask our writers any homework question.