Convertible loan stock

Convertible loan stock is a financial instrument that bridges debt and equity offering distinct advantages to investors and companies. It is a form of debt security, such as a bond or loan note that allows the holder to convert the debt into ordinary shares of the issuer at predefined terms and dates. In the United States, these are called convertible bonds, while the United Kingdom and Europe use convertible loan stock. This instrument provides companies with flexible capital raising options and gives investors the potential for future equity participation. Convertible loan stock starts as a standard debt obligation with the issuing company paying regular interest or coupon and repaying the principal at maturity. Its distinguishing feature is the embedded option to convert. Under set conditions, usually at the holder's discretion, the loan can be exchanged for a predefined number of company shares. Conversion terms are specified at issuance. Because of this feature, coupon rates are typically lower than for non convertible bonds appealing to both issuers and investors. Convertible loan stock is popular when companies, especially those in growth or transition, need to raise capital without immediately diluting shareholders equity. Startups and expanding businesses find it attractive when traditional loans are unavailable or costly. For investors, its appeal comes from downside protection, regular interest payments, while retaining upside if the share price rises above the conversion price. Private equity and venture capital