A convertible debt structure that has standard characteristics that make it the basic (plain vanilla) form amongst other structure. These characteristics include the debt being senior unsecured, while it is associated with no financial covenants. Other key features are a cash coupon below otherwise similar maturity non-convertible debt, a conversion price set at a premium to market (an option to buy-up premium by means of a call spread or capped calls), and a flexible settlement upon conversion (cash or shares) to minimize dilution.
It is a type of debt (financing) that can be converted equity shares of the issuer at or after a certain time over its maturity, while carrying the standard features of a convertible debt. An example is a convertible bond, that constitutes a debt instrument that can convert into equity shares according to a set of basic terms defined in the issuance documents. It is a hybrid security as it combines debt and equity features and provides the holder with more flexibility as to the ability to change its position over it maturity.
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