Convertible Note
Debt that can become equity — a bond with a conversion right and a share count that is not yet visible.
A convertible note is a debt security that the holder can convert into a stated number of shares. It pays a coupon and ranks as debt, but its price tracks the equity once the conversion option is in the money. Convertibles are the reason a company's diluted share count can be materially larger than its basic count, and the conversion terms — ratio, triggers, adjustment on a fundamental change — live in the indenture.
In detail
A convertible note is a bond plus an embedded call on the issuer's stock. That combination lets an issuer borrow at a coupon below what straight debt would cost, paying for the difference with potential dilution. The conversion ratio — shares per $1,000 of principal — implies a conversion price, and the offering is priced at a conversion premium above the stock price on the pricing date.
Notes come to exist through an offering: registered on an S-3 shelf with a 424B prospectus supplement, or sold privately under Rule 144A with a resale registration to follow — the latter now the dominant path, which means the definitive terms often reach the public through an 8-K with the indenture attached rather than through a prospectus. Convertible offerings are frequently accompanied by a capped call or note hedge and warrant transaction executed at pricing, which offsets dilution for the issuer up to a cap and is disclosed in the same 8-K. Those transactions change who bears the dilution and are routinely omitted from summaries. In small-cap financings, convertibles may instead carry market-price or discount-to-market conversion formulas, valuation caps, and anti-dilution resets — terms that can compound dilution sharply and usually travel with a beneficial-ownership cap on conversion.
A holder owns a debt claim — principal at maturity, coupon on schedule, a place in the capital structure ahead of equity — plus a conversion right. Modern convertibles typically restrict conversion until a trigger is met: the stock trading above a percentage of the conversion price for a specified number of days in a quarter, a sharp move in the note's own trading price, or the approach of maturity. Settlement may be in shares, in cash, or in a combination at the issuer's election, which materially changes the dilution. A fundamental-change provision usually gives holders a put at par and increases the conversion ratio on a sliding scale.
Lifecycle events: issuance in the 8-K and indenture; conversion-trigger satisfaction disclosed quarterly; issuer redemption once a stated period and price condition are met, which typically forces conversion; holder puts on stated dates or on a fundamental change; exchanges of old notes for new — a common restructuring step — in an 8-K or S-4; default, forbearance, and restructuring in 8-K; and the effect on share count in every 10-Q.
Before assuming anything, read the indenture for the conversion ratio and its adjustments, the trigger conditions, the settlement method, the call and put dates, and the fundamental-change table; check for a capped call; check for reset provisions and ownership caps in smaller issues; and read the diluted share count reconciliation in the periodic report rather than assuming full conversion.
These values are read from the filing linked above. They describe the instrument, not its merits. Nothing here is investment advice.