This chapter presents an overview of the value and premium issues, zero‐coupon convertibles, warrants, Medium‐term notes (MTNs), credit rating, secondary market, and issuers and investors. A ...convertible bond is a bond that can be converted at the option of the holder into the ordinary shares of the issuing company. Once converted into ordinary shares, the shares cannot be exchanged back into bonds. The percentage conversion premium is the percentage by which the conversion price exceeds the current share price. A convertible can be viewed as a conventional bond with a warrant attached to it. Its fair price will therefore be related to the price of a vanilla bond and the price of a call option, taking into account both the dilution effect of the new shares that are issued and the coupon payments that are saved as a result of conversion. The attraction of a convertible for a bondholder lies in its structure being one of a combined vanilla bond and option. Warrants are usually attached to bonds (host bond) to start with; in most cases such warrants are detachable and can be traded separately. MTNs are corporate debt securities ranging in maturity from 9 months to 30 years. A company wishing to raise a quantity of medium‐term or long‐term capital over a period of time can have the choice of issuing MTNs or long‐dated bonds.
