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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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What is an Exchangeable Bond?

What is an Exchangeable Bond?

James Eves

30 years: Equity capital markets

James discusses exchangeable bonds by taking a look at the Spanish construction company, ACS. He discusses the size, terms and result of this issuance.

James discusses exchangeable bonds by taking a look at the Spanish construction company, ACS. He discusses the size, terms and result of this issuance.

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What is an Exchangeable Bond?

2 mins 27 secs

Overview

Exchangeable bonds are similar to convertibles but have some key differences including the pricing of an exchangeable being the option value.

Key learning objectives:

  • Define an Exchangeable bond

  • Learn how they are similar and different to convertibles

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Summary

What are Exchangeable Bonds?

An exchangeable bond is similar to a convertible bond, except that the underlying shares are not those of the issuer itself, but different shares that the issuer typically owns. All other features are the same in terms of premium, option value, discounted coupon and call options.

However, when investors consider the pricing of an exchangeable, they need not to look at the credit of the issuer, but the option value – therefore the dividend, implied volatility and equity outlook of the shares underlying the exchangeable.

Exchangeable bonds do not result in the issuance of new shares and so do not have potential equity dilution attached to them. For issuers, exchangeables can be attractive as they are a way of ‘selling’ the underlying shares at a premium to the current market, if exchanged, as well as getting some low-cost debt financing (as a result of option value from those underlying shares).

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