Can someone summarize the key differences between the yields and other pertinent info to know about bonds with warrants vs. convertible bonds? thanks.
Jamms Wrote: ------------------------------------------------------- > Can someone summarize the key differences between > the yields and other pertinent info to know about > bonds with warrants vs. convertible bonds? thanks. converts have LOWER yld b/c the invrestor has the gift of being able to convert it later. ower yld. not sure on other one boom, keep em coming
converts…recorded on the BS as the full liability. bonds with warrant, accounting treatement splits a portion of the bond into liability and equity. The liability for a bond with warrants will be less than the liability of a convert (all else equal). Also, because of the optionality to convert or exercise the waarant, these will carry lower coupons, and in effect will have lower yields (thinking about the impact on the IS here).
they both have lower yields than straight because they both have a feature of value to the bond owners. i just read where bonds with warrants create equity and liability on the balance sheet. can someone confirm that
daj224 Wrote: ------------------------------------------------------- > Jamms Wrote: > -------------------------------------------------- > ----- > > Can someone summarize the key differences > between > > the yields and other pertinent info to know > about > > bonds with warrants vs. convertible bonds? > thanks. > > > converts have LOWER yld b/c the invrestor has the > gift of being able to convert it later. ower yld. > > > not sure on other one > > boom, keep em coming Bonds with warrants also work the same way. The only difference is warrant need new shares to be issues. So it may yield loewr than the convertible… did I screw it?
Other key thing to note is how these are treated from an analysis perspective Convertible bond should be treated like equity it the value of the option makes it very likely that the holder will convert. If it is very unlikely, treat as debt. For bonds with warrant, the equity component should be treated like equity… the debt, like debt.
thanks, but what does it mean the warrant component treated as equity? Is there a calculation we need to know to state what amount is liab and/or equity, or just the concept that part of the amount raised goes to liability, and part goes to equity? Since part of the money raised goes to equity for bonds with warrants, is the fact that interest expense is based on a smaller value the reason the interest expense is smaller?
All else equal, a bond with warrants will trade at a lower yield than a convert. If the company does really well you would rather own the bond with warrants because not only are the warrants ITM but the bond has increased in value too. With a convert, you need to part with the bond to get the equity. Of course, throw in some call options and they are the same.
Warrants are converted using the treasury method. which is (1 - warrant strike price/average stock price) * (# warrants) ? Jamms Wrote: ------------------------------------------------------- > thanks, but what does it mean the warrant > component treated as equity? Is there a > calculation we need to know to state what amount > is liab and/or equity, or just the concept that > part of the amount raised goes to liability, and > part goes to equity? > > Since part of the money raised goes to equity for > bonds with warrants, is the fact that interest > expense is based on a smaller value the reason the > interest expense is smaller?