Had a really interesting conversation with @matt_levine about the intersection of technology and finance, coming to an Internets near you in the not too distant future.
I definitely learned something; hope everyone will enjoy it.
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That reason: you should only convert the bond above some share price, which effectively means you have a call option on buying the stock. Call options are more valuable if volatility is high. This is well understood.
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Therefore, a borrower running a business with high variance (like a tech company with unproven model or a biotech firm) can get a loan which they’d probably not qualify for under traditional underwriting standards (“Where’s your cash flow?!”) by bundling implicit option premium.
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That’s kind of beautiful: the very fact that your business is risky de-risks the offering enough such that you can access the money necessary to take your risky shot.
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End of conversation
New conversation -
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I think they're functionally equivalent words serving mostly to identify which side of the Atlantic one did one's formative work years on.
End of conversation
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