Revertible

AAA

DEFINITION of 'Revertible'

Refers to a special kind of convertible corporate bond that automatically converts itself into shares of the company's stock in the event that the underlying stock drops below a certain price. This stands in contrast to traditional convertible bonds, which the bondholder may or may not choose to convert into shares of company stock. These revertible bonds generally have a time limit or expiration date when the bond will automatically convert into stock or forever remain a bond. Typically, these bonds pay very high interest rates and are offered by companies that are considered well-below investment grade. They are also known as reverse convertible bonds.

INVESTOPEDIA EXPLAINS 'Revertible'

Depending on your point of view, revertible bonds or notes can be advantageous or dangerous to an investor's bottom line. Considering that the automatic conversion feature of these bonds only kicks in if the stock price plummets, a conversion would likely reflect the marketplace viewing the company as suddenly financially unstable. In this event, the company's stock may be more attractive to investors looking to abandon ship, since a thinly traded stock may be easier to unload than an illiquid bond. But, it also may set up an investor who wishes to stay invested for a total loss, since bondholders get priority over common stock holders when it comes to a corporation liquidating its assets.

RELATED TERMS
  1. Conversion Price

    The price per share at which a convertible security, such as ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  4. Mandatory Convertible

    A type of convertible bond that has a required conversion or ...
  5. Busted Convertible Security

    A convertible security that is trading well below its conversion ...
  6. Reverse Convertible Bond - RCB

    A bond that can be converted to cash, debt or equity at the discretion ...
Related Articles
  1. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Options & Futures

    An Introduction To Reverse Convertible Notes (RCNs)

    When stocks are stagnant and fixed-income yields are crumbling, RCNs come to the rescue!
  4. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  5. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  6. Options & Futures

    The Mandatory Convertible: A "Must Have" For Your Portfolio?

    Mandatory convertibles are a little understood security with some distinct advantages. Find out if they are right for you.
  7. Bonds & Fixed Income

    Unconstrained Investing: What It Is … And What It Isn’t

    “Unconstrained investing” is a term that is bandied about frequently—and is an investment approach that can often be misunderstood.
  8. Bonds & Fixed Income

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions like a loan between an investor and a corporation.
  9. Options & Futures

    Basic Investment Objectives

    You might know about different asset types, but do you know how each type contributes to a particular goal?
  10. Economics

    Why Your Pension Plan Has Sovereign Debt In It

    One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center