DEFINITION of 'Forced Conversion'

The occurrence of an issuer of a convertible security exercising the right to call the issue, forcing investors to convert their securities into the predetermined number of shares.

BREAKING DOWN 'Forced Conversion'

An issuer will be interested in forcing a conversion if interest rates decline significantly, or if the price of the security underlying the convertible is above the conversion price. Forced conversions are generally detrimental to the holders of the security.

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RELATED FAQS
  1. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... 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 >>
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    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  4. Do convertible bonds have voting rights?

    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
  5. Why would a corporation issue convertible bonds?

    Discover how corporations issue convertible bonds to take advantage of much lower interest rates as a result of a conversion ... Read Answer >>
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    A Chinese Hedge is a form of arbitrage by which an investor shorts a convertible bond and buys the underlying common stock. ... Read Answer >>
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