Deferred Equity

DEFINITION of 'Deferred Equity'

A type of security, such as preferred shares or convertible bonds, that can be exchanged in the future at a predetermined price for another type of instrument, such as shares of common stock. These securities are known as deferred equity because of their equity component, and the expectation that they will be converted into stock shares in the future.

Also called convertibles.

BREAKING DOWN 'Deferred Equity'

A convertible bond is an example of deferred equity since the bondholder will exercise the convertible option and convert the bond to shares of common stock if the price of the underlying shares rise to a profitable level. A convertible security is a debt instrument that can be converted to equity, thus deferring the equity until the time that the conversion to common stock, for example, takes place.

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