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.

BREAKING DOWN '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. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  2. Convertible Bond

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

    An investment that can be changed into another form. The most ...
  4. Premium Put Convertible

    A convertible bond with an additional put feature that allows ...
  5. Contingent Convertibles - CoCos

    A security similar to a traditional convertible bond in that ...
  6. Convertible Bond Arbitrage

    An arbitrage strategy that aims to capitalize on mispricing between ...
Related Articles
  1. Managing Wealth

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  2. Managing Wealth

    What You Should Know About Convertible Bonds

    As investors continue to seek yield in the current market, it's now a good time to bring up an often overlooked asset class—the convertible bond.
  3. Financial Advisor

    Worried About Stocks? Try on Convertibles

    Convertibles are a good hedge against equity market risk (if you're o.k. with losing a bit of upside potential).
  4. ETFs & Mutual Funds

    Why Include Convertible Securities in Your Portfolio

    What are convertible securities and why you should include them in your portfolio.
  5. Managing Wealth

    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.
  6. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond ETFs (CWB, ICVT)

    Discover how convertible bond ETFs can offer investors growth and income while hedging fixed income portfolios in a rising rate environment.
  7. Markets

    Convertible Bonds

    A convertible bond is a bond the investor can exchange for a specific amount of company stock at a later date. It combines a bond and a call option. The bondholder can benefit if there's an increase ...
  8. ETFs & Mutual Funds

    Leverage Your Returns With A Convertible Hedge

    Find out how you can maintain your income stream by using this type of bond strategy.
  9. ETFs & Mutual Funds

    3 Best High-Yielding Convertible Bond Mutual Funds (LACFX, FACVX)

    Discover an often overlooked asset class and how your portfolio can benefit from it, and learn about three of the highest-yielding options available.
  10. Managing Wealth

    The Top 6 Convertible Bond Funds for 2016

    Take a look at convertible bond mutual funds that are well-positioned heading into 2016, and why investors might consider a convertible fund portfolio.
RELATED FAQS
  1. Why do some investors prefer convertible over “straight” bonds?

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

  4. What is a convertible bond?

    A convertible bond is a bond issued by a corporation that, unlike a regular bond, gives the bondholder the option to trade ... Read Answer >>
  5. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center