Exchangeable bond

Exchangeable bond (or XB) is a type of hybrid security consisting of a straight bond and an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions.^[1] An exchangeable bond is different from a convertible bond. A convertible bond gives the holder the option to convert bond into shares of the issuer.

The pricing of an exchangeable bond is similar to that of convertible bond,^[2] splitting it in straight debt part and an embedded option part and valuing the two separately.

Pricing

See also Bond option: Embedded options, for further detail.

Price of exchangeable bond = price of straight bond + price of option to exchange

• Price of an exchangeable bond is always higher than the price of a straight bond because the option to exchange adds value to an investor.
• Yield on an exchangeable bond is lower than the yield on a straight bond.

References

External links

• First Exchangeable Bond in Central and Eastern Europe issued by EBRD
• Dixons mulls Wanadoo exchangeable bond issue
• Allianz: Bonds and Exchangeable Bonds

Corporate finance and investment banking Capital structure Convertible debt Exchangeable debt Mezzanine debt Pari passu Preferred equity Second lien debt Senior debt Senior secured debt Shareholder loan Stock Subordinated debt Warrant Transactions (terms / conditions) Equity offerings At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting Mergers and acquisitions Buy side Control premium Demerger Divestment Drag-along right Management due diligence Pitch book Pre-emption right Proxy fight Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Super-majority amendment Tag-along right Takeover Reverse Tender offer Leverage Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance Valuation Accretion/dilution analysis Adjusted present value Associate company Business valuation Conglomerate discount Cost of capital Weighted average Discounted cash flow Economic Value Added Enterprise value Fairness opinion Financial modeling Free cash flow Free cash flow to equity Market value added Minority interest Modigliani–Miller theorem Net present value Pure play Real options Residual income Stock valuation Sum-of-the-parts analysis Tax shield Terminal value Valuation using multiples List of investment banks Outline of finance