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We find that firms in countries with stronger shareholder rights issue convertible debt with a higher expected probability of converting to equity.
Often, mere rumours that a company might be about to issue convertible bonds are enough to trigger a sell-off.Some investment banks, such as UBS Warburg, have tried to fight this by tightly controlling information about issues.
Firms that issue convertible debt have high debt- and equity-related costs of external finance.
Nothing unusual about this many public companies issue convertible securities, and we're not referring to them.
One way financial companies might have found new capital during the height of the crisis would have been to issue convertible bonds to those hedge funds.
Geely's interest in Opel came after news about it planned to issue convertible bonds and warrants worth $250 million in an effort to raise capital that many thought could be used to pursue a deal with Volvo.
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In contrast, firms in countries with stronger creditor rights issue convertibles with lower probability of conversion.
Specifically, in countries with stronger shareholder rights, firms with higher separation of control rights and cash flow rights tend to issue convertibles with lower probability of conversion.
This could make the LLC's tax situation far more complex than expected, especially if the LLC ignored John Frankel's advice and issued convertible notes as an LLC before it converted to a corporation and issued preferred stock.
However, companies issuing convertible debt have been selling the option too cheaply.
Last week Yahoo raised $750 million by issuing convertible notes at what analysts described as extremely favorable terms.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com