Warrants - 1 Warrants Warrants Copyright 1998-2006 Investment Analytics opyright 1998-2006 Investment Analytics Warrants Slide 2 Roadmap Warrants

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Unformatted text preview: 1 Warrants Warrants Copyright 1998-2006 Investment Analytics opyright 1998-2006 Investment Analytics Warrants Slide: 2 Roadmap: Warrants Stock Short Put Call Floor Warrants SCORES Buy-write Put Warrants PRIMES OTM Call Call Spread Collar PERCS SHIELDS ELKS DECS PRIDES ebt Convertibles PENS SUPERS GROIS Equity Swap opyright 1998-2006 Investment Analytics Warrants Slide: 3 Agenda: Warrants What are warrants How they are traded Warrant valuation Warrant markets opyright 1998-2006 Investment Analytics Warrants Slide: 4 Warrants Option to purchase stock Agreed strike price (Subscription price) Fixed term, typically 4-5 years Either European or American Issuer: Mainly corporations Some third party issuers Most warrants issued as part of package Stock or debt issue - Bonds cum Warrants Warrants usually detachable Bonds subsequently traded Expaper - straight debt opyright 1998-2006 Investment Analytics Warrants Slide: 5 Rationale for Issuing Purpose: Increase attractiveness of offering Reduce financing cost Tax & Accounting Advantages Fair market value of warrant treated as equity rather than as debt for convertible bond Issuer can use Treasury Stock method for EPS rather than if converted method for convertibles Amortized warrant value allocated to host bond Increases interest expense for accounting purposes opyright 1998-2006 Investment Analytics Warrants Slide: 6 Warrant Types Warrants with Common Stock or Bonds Debt Warrants Allow investors to purchase additional debt Warranted bond usually has same coupon & maturity as host bond Harmless Warrants: Variant of debt warrants Warrant not exercisable until host bond becomes callable If warrants exercised bonds will be called, so no increase in debt opyright 1998-2006 Investment Analytics Warrants Slide: 7 Warrant Types Covered Warrants Synthetic warrants issued by third party e.g. Japanese debt warrants: BT issued identical warrants in local currency for Swiss investors Put Warrants Right to sell companys common stock Typically used as part of share repo program e.g. company wants to hedge employee share options Takes in option premium Asset Warrants Based on any asset, e.g. currency, Nikkei 225 opyright 1998-2006 Investment Analytics Warrants Slide: 8 Warrant Trading Mostly OTC Exchange traded: Rules for common stock apply Settlement 5 days from trade date Can be bought on margin Can be sold short, but only on plus tick Must borrow warrant to sell short opyright 1998-2006 Investment Analytics Warrants Slide: 9 History of Warrant Market 1920s bull market Used for speculation Abandoned after collapse in 1929 1960s : conglomeration (until 1969) 1970s 1st major blue chip issue (AT&T) Listed by NYSE for first time 1980s: Japanese Warrant Market $65Bn in 1990 $3Bn in 1992 opyright 1998-2006 Investment Analytics...
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This document was uploaded on 11/04/2011 for the course ECON 421 at CUNY York.

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Warrants - 1 Warrants Warrants Copyright 1998-2006 Investment Analytics opyright 1998-2006 Investment Analytics Warrants Slide 2 Roadmap Warrants

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