What is a convertible bond?

On top of what Sandra mentioned, convertible bonds are a form of mezzanine debt, which has both a foot in the debt and equity portion of a company's capital structure. It has a risk profile that is in between both debt and equity.

One use of such debt is from smaller companies, such as start ups, where the borrower may default on his payments or coupons but the equity valuation may increase over time, allowing the bond holder to convert his debt to equity and gain in the upside even if his

A convertible bond is a type of debt financing tool that companies can use to raise fund. The upshot convertible bonds is that it has greater appreciation potential than corporate bonds and it is less vulnerable to losses if the issuer defaults. On the other hand, should the issuer go into bankruptcy, convertible bond holders have a lower priority to claiming the company's asset.