What is the cost of exchange offer of a bond to the investors and the company?
What is the cost of exchange offer of a bond to the investors and the company?
Homework Answers
Bond exchange offer means bondholders are given an option to exchange existing bond to some other security like equity shares in the company.
The cost to it for investors will be increase in risk. Bonds provide fixed income whereas converting into shares will lead to risk in their investments. If investor is a risk averse, then this will be huge cost on his portfolio.
The cost to company is that company has to give shares to investors. This might dilute the shareholding percentage to promoters or shareholders. However exchange offer is executed when company feels that debt component is high onthe company books.
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What is the cost of exchange offer of a bond to the investors
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