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Bond trading

ggr

Expert in Dunning-Kruger Effect!
Supporting Member
Mar 24, 2011
7,010
28,082
San Diego, CA
I bought some of Tesla's most recent convertible bonds. I haven't done much with bonds in general, and have a few questions.

Here's what ETrade says about the bond:
Screen Shot 2019-11-08 at 18.42.36 .png


My first question is because I've tried to look it up and have conflicting answers. The coupon is 2%, and it's semi-annually. Does that mean that it is 2% per annum, or 4%? Edit: I guess I'll find out for sure in 7 days.

I can choose to convert it, since I'm the bondholder. It's effectively a call option with a strike of $309.82774. Tesla can't make that decision since it's non-callable. Investopedia basically says I should convert it if the current stock price minus the conversion price is greater than the expected interest (which is why the difference between 2% and 4% matters). Also I don't believe it... in case of bankxuptcy the bond is "more protected" and is returning interest, and I can just sit and convert it after the last coupon payment. Am I understanding correctly?
 
Last edited:

ReflexFunds

Active Member
Dec 7, 2018
1,152
24,429
-
I bought some of Tesla's most recent convertible bonds. I haven't done much with bonds in general, and have a few questions.

Here's what ETrade says about the bond:
View attachment 474745

My first question is because I've tried to look it up and have conflicting answers. The coupon is 2%, and it's semi-annually. Does that mean that it is 2% per annum, or 4%? Edit: I guess I'll find out for sure in 7 days.

I can choose to convert it, since I'm the bondholder. It's effectively a call option with a strike of $309.82774. Tesla can't make that decision since it's non-callable. Investopedia basically says I should convert it if the current stock price minus the conversion price is greater than the expected interest (which is why the difference between 2% and 4% matters). Also I don't believe it... in case of bankxuptcy the bond is "more protected" and is returning interest, and I can just sit and convert it after the last coupon payment. Am I understanding correctly?

The bonds pay 2% per year.
I like these bonds, less leverage than pure call options, but these converts include the longest dated Tesla call option currently available which gives Tesla a long time to deliver on their business plans.
Bonds are senior to equity, so they shouldn't be written down before equity. Also in bankruptcy you have the right to cash ahead of shareholders, and the bonds may get converted to new equity after the current equity is wiped. The bonds are unlikely to continue paying cash interest in bankruptcy though. A lot can happen in restructuring, so never any certainty.
 

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