Our convertible notes have characteristics of both debt and equity. How do you determine if the note is a debt host or an equity host?
Convertible notes
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Typically, legal form debt will be considered a debt host, whereas an equity-linked instrument may represent either an equity host or a debt host. To determine whether the host is debt or equity, all terms and features should be considered, and each feature weighed based on relevant facts and circumstances. Debt-like indicators include redemption provisions, cumulative/mandatory fixed dividends, collateral and liquidation preference. Equity-like indicators include conversion options, voting rights, discretionary dividends based on earnings and participation in residual equity.