Convertible Debenture

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What is a 'Convertible Debenture'

A convertible debenture is a type of loan issued by a company that can be converted into stock by the holder and, under certain circumstances, the issuer of the bond. By adding the convertibility option the issuer pays a lower interest rate on the loan compared to if there was no option to convert. These instruments are used by companies to obtain the capital they need to grow or maintain the business.

BREAKING DOWN 'Convertible Debenture'

Convertible debentures are different from convertible bonds because debentures are unsecured; in the event of bankruptcy the debentures would be paid after other fixed income holders. The convertible feature is factored into the calculation of the diluted per-share metrics as if the debentures had been converted. Therefore, a higher share count reduces metrics such as earnings per share, which is referred to as dilution.

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RELATED FAQS
  1. What is the difference between a debenture and a bond?

    Learn how to differentiate between debentures and bonds, two types of debt securities that can be issued by a government ... Read Answer >>
  2. How is a debenture stock different from a regular debenture?

    Learn to differentiate between standard debentures and debenture stocks, which are equities that act more like preferred ... Read Answer >>
  3. How risky is it to enter into a debenture agreement?

    Understand the nature of debenture agreements and the inherent risks and clauses that may provide additional protection for ... Read Answer >>
  4. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Answer >>
  5. What is the difference between nonconvertible debentures and fixed deposits?

    Debentures and fixed deposits are two different ways of investing money. A debenture is an unsecured bond. Essentially, it ... Read Answer >>
  6. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
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