Convertible Debenture

Loading the player...

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.

RELATED TERMS
  1. Partially Convertible Debenture ...

    A type of convertible debenture, part of which will be redeemed ...
  2. Debenture

    A type of debt instrument that is not secured by physical assets ...
  3. Hung Convertibles

    Convertible securities that are very unlikely to be converted ...
  4. Convertible Arbitrage

    A trading strategy that typically involves taking a long strategy ...
  5. Convertible Security

    An investment that can be changed into another form. The most ...
  6. Premium Adjustable Convertible ...

    A debt instrument that combines a coupon paying bond with the ...
Related Articles
  1. Options & Futures

    20 Investments: Convertible Security

    What Is It? A convertible, sometimes called a CV, is either a convertible bond or a preferred stock convertible. A convertible bond is a bond that can be converted into the company's common stock. ...
  2. Financial Advisors

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  3. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  4. Stock Analysis

    A Convertible Income Choice

    Given the low interest rate environment, convertible bonds is one way for income investors to find yields.
  5. Mutual Funds & ETFs

    3 Best High-Yielding Convertible Bond Mutual Funds (LACFX, FACVX)

    Discover an often overlooked asset class and how your portfolio can benefit from it, and learn about three of the highest-yielding options available.
  6. Stock Analysis

    The Convertible Way To Play This Market

    Investors are certainly facing a quandary. The broad market has gone up by leaps and bounds since the end of the recession. That’s worrisome. Yet, more gains could be in store as the Fed isn’t ...
  7. Mutual Funds & ETFs

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  8. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  9. Options & Futures

    The Mandatory Convertible: A "Must Have" For Your Portfolio?

    Mandatory convertibles are a little understood security with some distinct advantages. Find out if they are right for you.
  10. Mutual Funds & ETFs

    The Top 3 Convertible Bond ETFs for 2016 (CWB, ICVT)

    Obtain detailed information on the exchange-traded funds (ETFs) available for traders seeking ETF exposure to convertible bond investments.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  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 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 >>
  5. What are the differences between preference shares and debentures?

    Learn why preference shares are equity securities and debentures are debt securities. Understand the differences between ... Read Answer >>
  6. How do I use a premium put convertible?

    Holders of convertible bonds face all the pitfalls that traditional bondholders face - liquidity risk, interest rate risk ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center