One of the concerns of convertible bonds is the credit issue: Credit issues may complicate valuation since bonds have exposure to credit risk. When credit spreads widen or narrow, there would be a mismatch in the values of the stock and convertible bond positions that the convertible manager may or may not have attempted to hedge away.
Does this refer to the fact that when spreads widen (narrow), then the bond value goes (down)/(up), so you get potential mismatches in value upon conversion of the bond into shares? Or how does credit risk impact a convertible bond?
Thanks a lot!