Professional Documents
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32
Convenience Risk
34
Reinvestment Rate Risk
35
Marketability Risk
High Grade
Moodys Aaa and S&P AAA capacity to pay is
extremely strong
Moodys Aa and S&P AA capacity to pay is very
strong
Medium Grade
Moodys A and S&P A capacity to pay is strong, but
more susceptible to changes in circumstances
Moodys Baa and S&P BBB capacity to pay is
adequate, adverse conditions will have more impact on
the firms ability to pay
7-40
Bond Ratings - Speculative
Low Grade
Moodys Ba and B
S&P BB and B
Considered possible that the capacity to pay
will degenerate.
Very Low Grade
Moodys C (and below) and S&P C (and
below)
income bonds with no interest being paid, or
in default with principal and interest in arrears
7-41
Convertible Bonds
42
Convertible Bonds (continued)
43
Convertible Bonds (continued)
Conversion Ratio
Number of common shares which the Bond
may be converted into
Example: A Ratio of 20 states that a $1000
Bond may be converted into 20 shares of the
Common
Implied conversion price is $50/ common Share
Ratios are normally fixed but can be variable
44
Sources of Value of Convertibles