What is a Debt Exchangeable for Common Stock?

Debt exchangeable for common stock (DECS) is a debt instrument that provides the holder with coupon payments in addition to an embedded short put option and a long call on the issuing company's stock. The primary convertible security is generally a listed structured product.

Understanding Debt Exchangeable f🔯or Common Stocks (DECS)

Debt exchangeable for common stock (DECS) instruments prov💟ide the hoꦗlder with the right to convert the security into the underlying company's common stock. Preferredꦬ rede♏emable increased dividend equity securities (PRIDES) are one example of debt exchangeable for common stock 🙈and are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an intꦅerest-bearing deposit for a specific price. Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity. PRIDES were first introduced by Merrill Lynch & Co.

Securities designated as debt exchangeable for common stock is one more financial product that falls under the general classification of convertible securities or '澳洲幸运5官方开奖结果体彩网:convertibles.' Convertibles are corporate securities (generally preferred stock or bonds) that are 澳洲幸运5官方♋开奖结果体彩网:exchangeable for a set number of another form (usually 💞common stock) at a pre-stated price. Investors are attracted to convertibles for their hybrid features: One part debt, with a semi-secure income stream, coupons; and a second feature offering growth, from equity's capital gains.

Convertibles are structured products that banks and other entities package to meet the demands of various types of investors. At times, a certain form of security is preferred, say debt, but investors' appetites are not as strong without the added equity-like features. To make a security more marketable, convertibility is one more feature that can increase the demand for certain types of securities.

Using Debt Exchangeable for Common Stock

A good example of where debt exchangeable for common stock might be used is for a company that is promising but young. Without a lengthy financial record, this company may not be able to secure conventional debt financing, particularly at a reasonable coupon rate. To cut interest costs and make the debt offering more attractive (marketable), this security can be packaged with an added option to convert the debt into 澳洲幸运5官方开奖结果体彩网:common stock.🥀 Now, with the added potential of capital gains, investors might take a clo꧂ser look while demanding a smaller coupon than a straight (option-free) bond.