Revertible
 |
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 Definitions
Articles Of Interest
-
Are High-Yield Bonds Too Risky?
Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio. -
Introduction To Convertible Preferred Shares
These securities offer an answer for investors who want the profit potential of stocks but not the risk. -
An Introduction To Reverse Convertible Notes (RCNs)
When stocks are stagnant and fixed-income yields are crumbling, RCNs come to the rescue! -
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. -
Convertible Bonds: An Introduction
Find out about the nuts and bolts, pros and cons of investing in bonds. -
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. -
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. -
Are Bonds Still Useful?
Bonds may be overpriced in the short-term, but there's no denying their utility as a hedge against more volatile securities. -
Corporate Bonds: An Introduction To Credit Risk
Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy. -
Risks To Consider Before Investing In Bonds
Make sure you understand the risks associated with bonds before making an investment decision.
Free Annual Reports
