Debentures with Warrants

This implies that it can be bought or sold on the secondary market, and can be quoted at the stock exchanges.

It’s a special type of buying option (never of selling) that offers to the holder the same right (not the obligation) to buy a certain number of shares or debentures from the issuing company.

The prices and terms are prefixed, and by a general rule the buying price is usually superior to that, that at the moment is being traded at the market. If at the time that the warrant can be exercised, the price of the shares is inferior or the same as the prefixed price, then the warrant will loose any value.

Before that time, and with the possibility of a rise in the prices of the shares, the value of the warrant will vary day to day reflecting on the prices of the shares. If the prices of the shares rise above the exercised prices of the warrants, then the price of these will be equal to the difference between both plus an amount that will reflect the additional growing probabilities of the prices of the shares.

Then, if the prices of the issuer’s shares rise, the investors will acquire them at a lower price than that in the market if they exercise the warrant. For them is more positive to receive the coupon of the debentures.

The shares   granted at the moment of execution of the warrants can be, as is in the case of the convertible debentures, (proceeding from an increase of capital), or old (belonging to the own portfolio of the issuer). The most common case is the second one.

With debentures with warrants they usually establish an ample period during which the investor may exercise the option (generally superior to a year). So, there isn’t a concrete period of time as in the case of the convertible debentures.

Another differences to emphasize are that the prices of the shares at the conversion are already fixed.

In the emitting conditions of every debenture it specifies the number of shares to which they have a right to subscript, the price at which they can be acquired and the clause which says at what date to obtain them.

Coupon Zero Debentures

• This type of debenture is issued with a great discount, that is, with a lower price than that of its amortization and they don’t pay a coupon. You only receive the nominal at its maturity. The yield is calculated according to the difference between the nominal value of the bond, that will be received at its maturity, and the price paid at the acquisition. Not perceiving any periodic interests, there exists an amortization prime which function is similar to that of the accrued interest.
• Its behavior on the secondary market differs from that of the ordinary debentures. The coupon zero debentures present a gradual increment on their quotations with the finality of incorporating the following corresponding interest payments to its price, which would correspond to them if they were ordinary debentures.
• The moment next to the payment of the amortization the prices of the coupon zero debentures tend to rise in a 100%.

Beginner Money Investing Assets Traded on the Stock Exchange Market General Types and Characteristics Government Liabilities Short Term Public Debt Private Debentures Debentures with Warrants Indexed Debentures Subordinated Debentures