Mandatory Convertible

What is a 'Mandatory Convertible'

A mandatory convertible is a type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock.

These securities provide investors with higher yields to compensate holders for the mandatory conversion structure.

BREAKING DOWN 'Mandatory Convertible'

These are often used when a traditional equity issuance would otherwise place severe market pressure on the underlying stock.

RELATED TERMS
  1. Convertible Security

    An investment that can be changed into another form. The most ...
  2. Conversion Price

    The price per share at which a convertible security, such as ...
  3. Conversion Ratio

    The number of common shares received at the time of conversion ...
  4. Convertible Arbitrage

    A trading strategy that typically involves taking a long strategy ...
  5. Adjustment in Conversion Terms

    A term used to describe the adjustment made to a convertible ...
  6. Busted Convertible Security

    A convertible security that is trading well below its conversion ...
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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. Why do some investors prefer convertible over “straight” bonds?

  3. What is a Chinese hedge?

    A Chinese Hedge is a form of arbitrage by which an investor shorts a convertible bond and buys the underlying common stock. ... Read Answer >>
  4. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
  5. If I use the Roth IRA backdoor technique when I'm less than 59 years old, do I have ...

  6. What does it mean when an investor moves a bond to equity?

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