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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.
- Fall '13