What Is a Convertible Senior Note?

A convertible senior note is a debt security that has priority over all other debts issued by a company. It is also an instrument that can be converted into a predetermined number of stock or bond shares.

Details

Selling convertible senior notes is a common way a company raises capital within the company without using any of the company's assets as collateral. They are a relatively safe investment for people wanting to invest money because there is little risk attached to them.

Benefits

Any debt that is considered senior debt offers benefits to the holder. If a debt is senior debt it is repaid by an organization before other debts the organization has acquired. The seller of these notes pays a lower cost for these bonds because the buyer has the option of converting them.

Uses

Convertible notes are often used by large companies when trying to raise capital in the business. Convertible notes are considered debt on the organization's books that sell them because they must be repaid to the holder plus interest. If they are not repaid, the organization is required to convert them to stock.

References

• Financial Dictionary: Senior Debt
• Business Finance: Convertible Note