Investors generally avoid investing in startups’ equity instruments due to the risks associated with them.Startups can’t raise debt finance, such as loans from banks, easily because they don’t have any credit history and, generally, no security to provide in lieu of the debt. Furthermore, convertible debts also increase the risk of finance for the company as convertible debts are debts and in case of default, the company may face legal actions.Convertible debts have a face value which is the principal amount of the instrument mentioned on the convertible note.In addition, convertible debts also have an interest rate, which is paid out by the issuing company to the debt holder annually until the maturity date is reached. Financial Assets - Convertible loan 7 / 15. V (of 15).The Catholic World. In the case of exchangeables, the credit quality of the issuer may be decoupled from the volatility of the underlying shares. (comparative more convertible, superlative most convertible) Able to be converted; Capable of being exchanged or interchanged, reciprocal, interchangeable (finance) Having the right to be converted into a different security, usually common stock, at the holder's option 87, January, 1865,Warren Commission (5 of 26): Hearings Vol. Instead, these debts are converted to common equity shares regardless of whether the debt holders want to convert or not.Therefore, mandatory convertible debts are more advantageous for startups as they don’t have to pay the initial amount of debt back to the debt holder, thus, not resulting in a cash outflow.Finally, reversible convertible debts are the opposite of vanilla convertible debts. This means they will receive a total of $1,350 ($1,000 principal and $350 interest) at the maturity date.If the common shares of the company at the maturity date are traded in the stock market for $48 without any rise.If the debt holder converts to common equity shares, they will receive 20 common equity shares of the company. These terms describe the convertible ratio of the instrument and the times at which investors can avail the option.The convertible ratio is the ratio at which the convertible debt will be converted into common equity shares. For example, for every $100 of the face value of convertible debt, the company may offer 10 common equity shares.There are 3 main types of convertible debts. Blocked fundsCash flows generated by a foreign project that cannot be immediately repatriated to the parent firm because of capital flow restrictions imposed by the host government.. They are automatically converted into equity if a pre-specified trigger event occurs, for example if the value of assets is below the value of its guaranteed debt.Foreign currency convertibles are any convertible bonds whose face value is issued in a currency different from issuing company's domestic currency.Any convertible bond structure, on top of its type, would bear a certain range of additional features as defined in its issuance prospectus:Convertibles could bear other more technical features depending on the issuer needs:Due to their relative complexity, convertible bond investors could refer to the following terms while describing convertible bonds:The global convertible bond market is relatively small, with about 400 bn USD (as of Jan 2013, excluding synthetics), as a comparison the straight corporate bond market would be about 14,000 bn USD. Notes. This means the debt holder will receive $960 for their original investment of $1,000. They may offer coupon regular payments during the life of the security and have a fixed maturity date where the nominal value of the bond is redeemable by the holder. Convertible debts allow companies to attract investors because convertible debts reduce the risk of investment for investors.For companies, convertible debts can be disadvantageous as well since the option to convert lies with the debt holder. Usually the investor would be able to then trade both legs separately. Based on the Random House Unabridged Dictionary, © Random House, Inc. 2020,Collins English Dictionary - Complete & Unabridged 2012 Digital Edition However, underwriters often refer to the following types: 1. This negative convexity would be compensated by a usually high regular coupon payment.Packaged convertibles or sometimes "bond + option" structures are simply a straight bonds and a call option/warrant wrapped together. The reason for this is simple: Since the convertible bond contains the option to be converted into stock, the rising price of the underlying stock increases the value of the convertible security.