Define: Conditional Put Convertible Bond

A Conditional Put Convertible Bond is a type of bond that gives the bondholder the option to convert the bond into a predetermined number of shares of the issuer’s common stock, subject to certain conditions.

The conditions for converting a Conditional Put Convertible Bond may vary depending on the terms of the bond. Typically, these conditions include a specified conversion price, a conversion period, and certain events that trigger the conversion option.

The conversion price of a Conditional Put Convertible Bond is usually set at a premium to the market price of the issuer’s common stock at the time of issuance. This premium is designed to provide an incentive for bondholders to convert their bonds into equity.

Yes, a bondholder has the option to choose not to convert the bond and instead receive the principal amount of the bond at maturity. This is known as the “put” option.

If the bondholder chooses to exercise the put option, the issuer is obligated to repurchase the bond at its face value or at a predetermined price, depending on the terms of the bond.

There may be certain restrictions on the conversion of a Conditional Put Convertible Bond, such as a minimum holding period or limitations on the number of shares that can be received upon conversion.

Investing in a Conditional Put Convertible Bond allows investors to benefit from the potential capital appreciation of the issuer’s common stock while still receiving fixed income payments. It also provides the option to convert the bond into equity if the stock price reaches a certain level.

Like any investment, there are risks associated with investing in a Conditional Put Convertible Bond. These risks include the potential for a decline in the issuer’s stock price, which could result in a lower conversion value, as well as the risk of default by the issuer.

Conditional Put Convertible Bonds are typically offered through investment banks or brokerage firms. Investors can contact their financial advisor or broker to inquire about purchasing these types of bonds.