KPMG Financial Reporting podcast Podcast: Convertible debt explained - What, why, and how
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Jan 11, 2024 Experts discuss proposed ASU improving accounting for induced conversions of convertible debt instruments, explaining what they are and how they work. They explore reasons for issuing convertible debt, including lowering interest costs, and discuss accounting implications of induced conversions.
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Convertible Debt Basics
- Convertible debt instruments grant investors the option to convert debt into common shares of the issuer.
- Modern variations include optional cash or share settlements for conversion's monetary components.
Transformer Toy Analogy
- Nick Riccirci compares convertible debt to his son's transformer toys for easy understanding.
- The analogy emphasizes debt transforming into equity, highlighting the complexity and flexibility of convertible debt.
Induced Conversion Explained
- Issuers can induce investors to convert by offering additional incentives called sweeteners.
- These incentives might include cash payments, warrants, or reduced conversion prices.