Adjustment in Conversion Terms
Definition of 'Adjustment in Conversion Terms'
A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split.
Investopedia explains 'Adjustment in Conversion Terms'
In some convertibles, an adjustment in conversion terms is a scheduled event. Otherwise, these adjustments are made in order to ensure that the holder of the convertible remains unaffected by any related changes.
For example, if a convertible security CBC has an exchange privilege of 1 common for $50, and the common share of CBC splits 2 for 1, then the exchange ratio will be adjusted to 1 common for $25.