Convertible debenture

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A convertible debenture is a type of business loan that leaves the lender the option of taking stock in the company instead of repayment.

In theory, the market price of a convertible debenture should never drop below its intrinsic value. The intrinsic value is simply the number of shares being converted at par value times the current market price of common shares.

It is safer than preferred or common shares for the investor.

Convertible debentures can be sold short, thus depressing the market value for a stock, and allowing the debt-holder to claim more stock with which to sell short. This is known as death spiral financing