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Unformatted text preview: vestors a
yield that was about 2 percent
higher. The strategy worked, however, and investor demand pushed
the size of the offering from $500
million to $875 million.
Sources: Adapted from “EDS Completes
Public Offering of 20-Year, Senior Convertible
Notes,” PR Newswire (October 4, 2001),
downloaded from findarticles.com; Richard
H. Gamble, “Convertibles Roll Out in Fleets,”
Business Finance (July 2001), downloaded
from businessfinance.com; and Ian Springsteel, “Who Needs Equity?” CFO (July 1,
2001), downloaded from cfo.com. A convertible security that cannot be forced into conversion by using the call feature is called an overhanging issue. An overhanging issue can be quite detrimental
to a firm. If the firm were to call the issue, the bondholders would accept the call
price rather than convert the bonds. In this case, the firm not only would have to
pay the call premium but would also require additional financing to pay off the
bonds at their par value. If the firm raised these funds through the sale of equity,
a large number of...
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- Fall '13