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advantages of convertible debentures

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 asked

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Dear Uma, On any agreement related to debt, there are two parties available. One is Lender(who gives money) and the other one is Borrower(who takes money). Now, I'm providing advantages of this agreement (i.e, Convertible Debentures) in relation to both the parties. Borrower Advantages By issuing convertible debt instead of stock, you remain the majority stockholder. You can issue preferred stock shares with no voting rights, to keep your lenders from having a say in how you run your company. Because it's usually cheaper and less time-consuming to issue convertible debt instead of stock, you'll get your money faster. With convertible debt, you don't have to worry about figuring out how much your company is worth to determine a stock share price.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

**ADVANTAGES OF CONVERTIBLE DEBENTURES** They are an attractive financing vehicle for an issuer as they provide a cheaper way to raise permanent capital. The benefit to selling convertible debentures is a reduced cash interest payment. A convertible debenture’s issuer is effectively selling a call option on their common stock to allow for a cheaper cost of funding. The cost of having a lower interest expense is the potential dilution of shareholder’s equity caused by exercising the conversion feature. Therefore, investors must weigh the loss in yield against the opportunity to convert into equity and benefit from capital appreciation. Convertibles also offer tax advantages to the issuer as fixed interest payments are tax deductible. Thanks

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