Convertible bonds

Convertible bonds

What is a convertible bond?

A convertible bond is a type of financing instrument having the form of bonds which permit an investor to finance a company and having the right or an obligation to exchange the bonds for a predetermined number of shares issued or to be issued by the Company.

What’s in it for the investors?

The convertible bonds are financing instruments which have the following interests for the investors:

  • Fixed income no link to the accounting profit of the issuing of the company;
  • can be considered as debt / equity for tax purposes;
  • Conversion of the bonds into company shares;
  • Third party debt characteristics (determined term, repayment, …) from an accounting point of view;

What’s in it for the companies?

The convertible bonds are financing instruments which have the following interest for the companies:

  • An efficient solution for receiving cash flows;
  • No need valuation of the Company´s equity;
  • Light legal process for the implementation of this type of financing.

However, certain points should be carefully monitored by the issuing company and by each investor:

  • Tax regime of the subscription/issuance of the convertible bonds at the level of the issuing company and each investor;
  • Transfer pricing issues applicable to the interest rate applicable on the convertible bonds and the premium/loss to be registered at the conversion of the convertible bonds;
  • Bankruptcy risk arising in the context of the repayment/conversion of the convertible bonds.

What we offer at BeeLex services

  • Drafting of the Luxembourg legal documentation to be implemented in relation with the issuance and the conversion of the convertible bonds;
  • Luxembourg legal and tax structuring of the financing structure;
  • Drafting and negotiating the Luxembourg tax documentation required for the implementation of convertible bonds.

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