Listen to a Business English Dialogue About Busted convertibles convertibles
Ariana: Hi Emma, have you heard about busted convertibles in business and finance?
Emma: Yes, Ariana. Busted convertibles refer to convertible bonds whose conversion value is significantly lower than their par value, making them less attractive to investors.
Ariana: Right. So, it’s like the conversion feature of the bond isn’t as valuable as originally expected?
Emma: Exactly. Busted convertibles can result from declines in the issuer’s stock price or changes in market conditions that reduce the likelihood of the bonds being converted into equity.
Ariana: How do investors typically respond to busted convertibles?
Emma: Well, Ariana, investors may sell busted convertibles if they believe that the bond’s conversion feature is unlikely to provide significant upside potential, or they may hold onto them if they expect the issuer’s stock price to recover in the future.
Ariana: Are there any risks associated with investing in busted convertibles?
Emma: Yes, Ariana. Investing in busted convertibles carries risks such as potential losses if the issuer defaults on its debt obligations or if the stock price continues to decline, as well as reduced liquidity and marketability compared to conventional bonds.
Ariana: Can issuers take any actions to address busted convertibles?
Emma: Well, Ariana, issuers may consider refinancing or restructuring the convertible bonds, such as offering a debt-for-equity swap or repurchasing the bonds at a discount to their face value, to improve their financial position and investor confidence.
Ariana: How do analysts assess the risks and potential returns of busted convertibles?
Emma: Analysts analyze various factors such as the issuer’s financial health, market conditions, and the potential for stock price appreciation to evaluate the investment merits of busted convertibles and determine their fair value.
Ariana: Thanks for explaining, Emma. I have a better understanding of busted convertibles now.
Emma: No problem, Ariana. If you have any more questions about finance or business, feel free to ask anytime.
