Companies issue convertible bonds to lower the coupon rate on debt and to delay dilution. A bond’s conversion ratio determines how many shares an investor will get for it. Companies can force conversion of the bonds if the stock price is higher than if the bond were to be redeemed.

What was the stock price when TSJ convertible bonds were issued?

If TSJ’s stock was trading at $40 at the time of the convertible bonds issue, investors would have the option of converting those bonds for shares at a price of $50—$40 x 1.25 = $50. So, if the stock was trading at $55 by the bond’s expiration date, that $5 difference per share is profit for the investor.

When did Twitter issue its first convertible bond?

This attribute caps the capital appreciation potential of a convertible bond. The sky is not the limit with convertibles as it is with common stock. For example, Twitter ( TWTR) issued a convertible bond, raising $1.8 billion in September 2014.

When is it time to sell a corporate bond?

Corporate bond investors must be mindful of this ceiling on bond prices. Therefore, if we recommend a corporate bond at par (100) and it increases to 125, we may recommend selling this bond so we can lock in our capital gain.

When do you have to pay back bondholders?

Most bond investors are familiar with a corporate bond’s maturity date, which is the contractual date a bond issuer must pay back bondholders the $1,000 face value for each bond they own.

What’s the market value of a corporate bond?

Corporate bond prices trade as a percentage of face value, so a price of 125 means that the bond is valued at a 25% premium to its $1,000 face value. No bond traded at or above 150, showing that bonds can only rise so much in price — a key difference to how stock market investments trade.