Convertible bonds

[kiwing100]

 

Hi there,

 

Looking at convertible instruments and just wondering if anyone here has bought and exercised convertible instruments (i.e convertible preferred, convertible bonds) in the US.  Would like to hear about your experiences. There are a few specific questions:

 

If you convert the bond or preferred - do you get registered or unregistered shares? (i.e is the stock you get tradeable on the exchange or do you need to get the company to register the stock before you can trade the stock)?  This assumes that the CB is not Reg144A or has some other restriction which limits the security beyond individual investors.

 

I see that in some cases, the company can choose to pay cash or settle in shares upon conversion.  What happens normally?  I am looking to see if convertible instruments are a better way to buy the stock, so would obviously want stock on conversion rather than cash.  Also do you know how long it takes when you convert the bond to get the shares? (I would like to get the dividend entitlement if possible so would like to know how long this would take)

 

Can individual investors do this or do you need to be a big institutional investor to be able to convert bonds and get the underlying shares? I would be buying less than 10 bonds (par value approx US$10,000).

 

Thank you in advance for your help.

 

 

[WideMoat]

Why would you convert?  Is the convertible trading at less than the notional value of the shares to be received?  If so, then why not just short the shares and wait for the relation to normalize?

 

Part of the value of a convertible is the optionality.  If you convert, then you basically evaporate a source of value. 

 

In my experience, only in rare circumstances do convertibles trade at a meaningful discount to their intrinsic value (like say fall-winter 2008), and thereby mark a better entry vehicle into an equity than the equity itself.

 

So the short answer--no, I've never found it advantageous to actually convert, so don't know the mechanics.