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.
Explaining ‘Mandatory Convertible’
These are often used when a traditional equity issuance would otherwise place severe market pressure on the underlying stock.
Further Reading
- Pricing and hedging mandatory convertible bonds – jod.pm-research.com [PDF]
- Mandatory Convertible Notes as a Sustainable Corporate Finance Instrument – www.mdpi.com [PDF]
- Back-Door Equity Financing: Citigroup's $7.5 Billion Mandatory Convertible Issue – papers.ssrn.com [PDF]
- Adverse selection and convertible bonds – academic.oup.com [PDF]
- Stabilizing large financial institutions with contingent capital certificates – www.elgaronline.com [PDF]
- A theory of mandatory convertibles: distinct features for large repeated financing – www.tandfonline.com [PDF]
- Economic consequences of financial reporting changes: diluted EPS and contingent convertible securities – link.springer.com [PDF]
- PERCS, DECS, and other mandatory convertibles – onlinelibrary.wiley.com [PDF]
