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.

BREAKING DOWN '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.

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