Companies raising money in the capital markets have a broad spectrum of product alternatives to choose from. At one end lies common equity, each share providing “permanent” capital to the business and representing fractional ownership of it. At the other lies straight debt, which can assume many forms based on various terms, covenants and provisions, but requires the payment of interest and repayment of principal at fixed points in time or under certain conditions. Failure to make such payments typically results in restructuring or bankruptcy, materially impacting shareholder value.
A broad range of structural variants populates the span between straight debt and common stock, each representing some mix of the attributes of these anchoring asset classes. Typically referred to as “convertible” or “equity-linked” securities, this distinctive asset class represents the third leg of the capital markets’ “stool”. Instruments within it enable issuers, which can vary enormously in terms of size and credit quality, to impart equity value to a financial instrument – in the form of warrants, options, conversion or participation rights, contingent value instruments, etc. – to offset a reduction in the value of some other component(s) of it.
The most common “hybrid” securities are convertible bonds, a structure which incorporates equity conversion rights into a debt instrument to materially reduce a given company’s fixed cost of borrowing (interest rate). The conversion price and conditions under which such right(s) may be exercised are significant components of value in the instrument and typically struck at a meaningful premium to the stock price at issuance.
We believe a company’s ability to select the most appropriate, cost-efficient financing vehicle begins with its ability to comprehensively analyze the alternatives at its disposal. This requires an understanding of all facets of the instruments under consideration – their “all-in” cost of capital – as well as market dynamics and the perspective of investors in the asset class. This is particularly complex in the context of equity-linked and derivative securities, which can be highly tailored to a company’s needs, but require great proficiency to assess. We also understand each transaction a company does influences the cost and breadth of alternatives available to it going forward.
At Aequitas, we provide our clients with product expertise and perspective acquired through decades of capital markets experience to knowledgeably evaluate and execute financing strategies, minimizing their cost of capital today and preserving their optionality for tomorrow.
Members of Aequitas Advisors LLC are registered with Zanbato Securities LLC. Securities products and services offered by Zanbato Securities LLC, member of FINRA and SIPC, and Zanbato UK, Ltd, member of FCA (together “Zanbato Securities”). Zanbato Securities LLC and Zanbato UK, Ltd are wholly-owned subsidiaries of Zanbato, Inc., which designs and develops software for private placement professionals. Zanbato Securities has no relationship with any entities mentioned outside of the Zanbato family of companies. Check the background of Zanbato Securities LLC on FINRA’s BrokerCheck. Neither the information nor any views expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material.
Aequitas Advisors LLC.
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