BEC写作范文—Callable bond跟convertible bond有啥不同

kevin

范文2. Callable bond跟convertible bond有啥不同.
To the board of director of ABC company,


As you have requested, the memorandum is to prepared to discuss differences
between callable bond and convertible bond.


A callable bond is a type of bond that allows the issuer of the bond to retain the
privilege of redeeming the bond at some point before the bond reaches its date
of maturity. A convertible bond is a type of bond that the holder can convert into
shares of common stock in the issuing company or cash of equal value, at an
agreed-upon price. It is a hybrid security with debt- and equity-like features.


From the invesntor’s perspective, with a callable bond, investors have the
benefit of a higher coupon than they would have had with a straight,
non-callable bond. On the other hand, if interest rates fall, the bonds will likely
be called, and they can only invest at the lower rate. This is comparable to
selling (writing) an option—the option writer gets a premium up front, but has a
downside if the option is exercised. If holding convertible bonds, investors could
convert the bonds they hold to common shares at their discretion.


From the issuer's perspective, the key benefit of raising money by selling
convertible bonds is a reduced cash interest payment. The advantage for
companies of issuing convertible bonds is that, if the bonds are converted to
stocks, companies' debt vanishes. However, in exchange for the benefit of
reduced interest payments, the value of shareholder's equity is reduced due to
the stock dilution expected when bondholders convert their bonds into new
shares.


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ychen7286

thanks for sharing