Purpose of this blog:

To understand what is a Convertible note with Tilray convertible notes issue as an example

Will you ever need to know this?

Probably. When the company you invested in issues convertible debt. You would want to know its impact on share price.

What is a Convertible Bond?

Convertible bonds give the holder the option to exchange the bond for a predetermined number of shares in the issuing company.

Tilray Case Study

Last Month: Tilray CEO interview on raising money

Market reaction after issue announcement

Terms of the Note

• Notional Value: $400M
• Type: senior unsecured
• Coupon Rate: 5%
• Conversion Rate: 5.9 shares per US$1,000
• Maturity:October 1, 2023

What could be Payoff for Investors?

Use slider to change stock price below

Expert Opinion:

Tilray convertible note financing is sweet news to investors ears. Additionally, investors don’t need to worry about dilution or potential adverse effects changing the stock’s share structure might entail.

source

Market Reaction after announcement of conversion rate

Tilray stock jumps after hours following pricing of convertible debt

Takeaway:

• The momentum in the stock may give investors a reason to at least look at such deal
• Such deals allow investors a downside-protected way to participate in the stock
• Concerns about the prospect of more shares coming onto the market might send stock down
• If conversion rate value stock at premium, stock would go up
• This is a popular strategy that other tech companies have used to offset dilution to very high share prices

References:

Twitter to offer $1 billion convertible note as shares rally

What’s Next:

I will create an interactive on Options pricing as part of my book on Mathematics and Statistics for Finance. I am on https://twitter.com/pavanmirla