Article Summary: Road Is Open for Convertible Debt (Article Sample)

MEMORANDUM TO
FROM:
DATE:
SUBJECT: Project – Article Summary: "Road Is Open for Convertible Debt”
In a rejoinder to your inquiry regarding the Wall Street Journal, here is a brief of an editorial displayed through the "Money and Investing" segment. The gen about the editorial in assessment can be found in the Work cited. In the article "Road Is Open for Convertible Debt" written by Mike Cherney, the author states that the convertible debt can be converted into the issuer’s stock at a specific price upon the request of the buyer unlike the other debts. He explains that the popularity of the convertible debt is most common among the companies that are trying to raise their liquidity at rates lower than the ordinary bonds. Among the investors the convertible debts can bag in more profits when the stock price of the issuer raise, especially if the prevailing interest rates are low. This year has experienced a great increase of the convertible debt issues as compared to the previous years. The month of September alone saw $5.3 billion worth of convertible bonds being listed for issuance in the US, marking the busiest month ever since 2006. The cause of this histrionic upsurge in the convertible debt market is as a result of the increased investor’s activity in the profitable market as well as the influence of the release of favorable economic news in the US throughout the year 2014. Additionally, it has also been observed that improvement of the stock market influences the performance of the convertible debts in a proportional measure. Similar to the prediction of most bank’s stocks, it is predicted that the convertible debt will fetch 11% profit in the next one year. If compared to stocks, convertible debts perform better because they do not experience any decline beyond the principal amount. This year the cash inflow into the convertible debts fund increased by 0.2$ billion to stand at 2.9$ billions as compared to last year’s 2.7$ billion inflow. The issuance of the convertible debts causes less impact on the existing shareholders hence it is more preferred in financially unstable companies. Violin Memory Inc., for instance, raised $105 million from convertible debts in the month of September in order to bail itself from a $38.6 million loss incurred in the last half of the year ending 31st July. Nonetheless, this year the S&P 500 index performed better than the convertible debt by posting a return of 8.12% as compared to the 5.74% posted by the convertible debt. But, the c...