6 billion of 20 year zero coupon convertible bonds in

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Unformatted text preview: ies Moody’s Investor Services, sold $1.6 billion of 20-year, zero-coupon convertible bonds in June 2001 and another $780 million in October 2001. The October issue was convertible into EDS common shares at an initial conversion price of $80.11, representing a premium of about 30 percent, and it carried a 1.25 percent yield to maturity. EDS cannot call the bonds for 3 years. Bondholders can sell the bonds back to EDS after 2, 3, 5, 10, and 15 years. Duke Energy Corp. chose a different structure and sold mandatory convertible debt in March 2001. Investors must convert the 3-year, 8.25 percent securities to common shares at maturity, regardless of the current stock price and based on a 22 percent conversion premium. Until conversion, the securities are treated as debt for tax and accounting pur- 687 In Practice poses and mostly as equity by credit rating agencies. “It helps us maintain our strong credit rating,” explains Myron Caldwell, Duke’s vice president of corporate finance. Compared with traditional convertible debt, which typically carries a lower rate than straight debt, Duke had to offer in...
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This document was uploaded on 01/19/2014.

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