Exchangeable bond

Exchangeable bond (or XB) is a type of hybrid security consisting of a straight bond and an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions.^[1] An exchangeable bond is different from a convertible bond. A convertible bond gives the holder the option to convert bond into shares of the issuer.

The pricing of an exchangeable bond is similar to that of convertible bond,^[2] splitting it in straight debt part and an embedded option part and valuing the two separately.

Pricing

See also Bond option: Embedded options, for further detail.

Price of exchangeable bond = price of straight bond + price of option to exchange

Price of an exchangeable bond is always higher than the price of a straight bond because the option to exchange adds value to an investor.
Yield on an exchangeable bond is lower than the yield on a straight bond.

References

↑ "Successful placement by KfW of exchangeable bonds due 2014, exchangeable into shares of Deutsche Post AG". 23 July 2009. Retrieved 2015-07-28.
↑ Barber, Brad. "Exchangeable Debt" (PDF). ucdavis.edu. Retrieved 2015-07-28.

External links

Bond market

Bond Debenture Fixed income

Types of bonds by issuer	Agency bond Corporate bond Senior debt Subordinated debt Distressed debt Emerging market debt Government bond Municipal bond

Types of bonds by payout	Accrual bond Auction rate security Callable bond Commercial paper Contingent convertible bond Convertible bond Exchangeable bond Extendible bond Fixed rate bond Floating rate note High-yield debt Inflation-indexed bond Inverse floating rate note Perpetual bond Puttable bond Reverse convertible securities Zero-coupon bond

Bond valuation	Clean price Convexity Coupon Credit spread Current yield Dirty price Duration I-spread Mortgage yield Nominal yield Yield to maturity Z-spread

Securitized products	Asset-backed security Collateralized debt obligation Collateralized mortgage obligation Commercial mortgage-backed security Mortgage-backed security Yield-curve spread

Bond options	Callable bond Convertible bond Embedded option Exchangeable bond Extendible bond Option-adjusted spread Puttable bond

Institutions	Commercial Mortgage Securities Association (CMSA) International Capital Market Association (ICMA) Securities Industry and Financial Markets Association (SIFMA)

Corporate finance and investment banking

Capital structure

Transactions
(terms / conditions)

Equity offerings	At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting

Mergers and acquisitions	Buy side Control premium Demerger Divestment Drag-along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag-along right Takeover Reverse Tender offer

Leverage	Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance

Valuation

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