Investment Banks, Hedge Funds, and Private Equity, 2nd Edition

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Convertible Securities and Wall Street Innovation

Convertible Securities

Most convertibles¹ are underwritten by large investment banks on a best efforts basis. This means that the issuer bears share price risk during the period of time when the security is being marketed to prospective investors. In the United States, convertibles are typically sold based on a 144A exemption from registration with the Securities and Exchange Commission (SEC). These securities, if held for 180 days (and assuming the issuer is current in its required SEC filings), can be freely sold, as can the underlying common shares, without the need for a registration statement. Investors therefore have confidence that, when and if they decide to convert into common shares, ...