Exchangeable Debt

AAA

DEFINITION of 'Exchangeable Debt'

A type of hybrid debt security that can be converted into the shares of a company other than the issuing company (usually a subsidiary). In an exchangeable debt offering, the terms of the issue such as the conversion price, the number of shares into which the debt instrument can be converted, and the debt maturity are specified in the bond indenture at the time of issue. Companies issue exchangeable debt for a number of reasons, including tax savings and divesting a large stake in another company or subsidiary.

INVESTOPEDIA EXPLAINS 'Exchangeable Debt'

Exchangeable debt is quite similar to convertible debt, the major difference being that in the latter, debt is converted into shares of the underlying issuer rather than shares of a subsidiary as is the case with exchangeable debt.

Because of the exchange provision, exchangeable debt generally carries a lower coupon rate and offers a lower yield than comparable straight debt, as is the case with convertible debt.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Indenture

    A legal and binding contract between a bond issuer and the bondholders.
  3. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  4. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  5. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  6. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
RELATED FAQS
  1. Why is term structure theory of importance to economists?

    The term structure theory, also known as the term structure of interest rates, is important to economists because it lets ... Read Full Answer >>
  2. Where can I find year-to-date (YTD) returns for benchmarks?

    Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity ... Read Full Answer >>
  3. What is the effective interest method of amortization?

    The effective interest method is an accounting practice used for discounting a bond. This method is used for bonds sold at ... Read Full Answer >>
  4. Under what circumstances would someone enter into a repurchase agreement?

    In finance, a repurchase agreement represents a contract between two parties, where one party sells a security to the other ... Read Full Answer >>
  5. What type of asset allocation should I use if I am already retired?

    Among investors, asset allocation is a topic of discussion that receives a great deal of weight during the asset accumulation ... Read Full Answer >>
  6. What happens to the price of a premium bond as it approaches maturity?

    The price of a premium bond will decrease toward par value as the bond approaches maturity. Premium Bonds Vs. Discount Bonds All ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  2. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  3. Savings

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  4. Economics

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  5. Professionals

    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).
  6. Stock Analysis

    Playing Rising Rates with Ultra-Short Term Bonds

    With rising rates likely, investors may want to consider adding a dose of ultra-short bonds to their portfolios. Here are some ETFs to consider.
  7. Professionals

    Why Investors Are Bailing on Bond ETFs

    Investors are fleeing bond ETFs. Should you follow the herd? Hint: It depends on the type of bond.
  8. Professionals

    Is a Bond Market Selloff Coming?

    A big investment management company is concerned about bond market conditions and allocating more capital to cash. Should you follow?
  9. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  10. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.

You May Also Like

Hot Definitions
  1. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  2. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  3. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  4. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  5. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  6. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!