Equity Sweeteners Explained

These refer to kickers that are added by the issuer of the bond to make the product more attractive, and in other words, therefore, to recompense for a low coupon rate.

One of these option is the conversion right, which gives the bondholder the right at a particular date in the future to convert their bond into shares in that company.

So of course this can be worth a lot and lot of money if the share price happens to move in a favourite direction, though of course if that doesn't happen then it might not be worth much, but nevertheless it has the potential to be very valuable indeed.

Another possibility is a warrant which is a similar product to that above, but rather than converting the bond into a number of shares, a bond is issued with a warrant giving the holder the option to buy new shares from the company at a specified price at dates in the future, so in other words it's a call option to get new shares in the company.

Why offer a warrant rather than a convertible bond? Well, it means the holder can split the warrant and trade both parts of the security.

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Equity Sweeteners Explained

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