The strategy worked however and investor demand

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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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