The coronavirus disease (COVID-19) outbreak has had and continues to have significant human, commercial and financial impacts all over the world. One undeniable impact is the economic uncertainty created by COVID-19 and the related historic volatility in global securities markets. While the impact of this volatility on a company’s common stock may be clear, the impact on a company’s equity-linked securities, like convertible bonds, may be less apparent.
This alert is intended to assist companies in thinking about how the market volatility could impact their outstanding convertible notes and the accompanying call-spread overlay equity derivatives. Convertible note indentures and bond hedge and warrant confirmations vary from deal to deal, sometimes significantly, so the concepts addressed below are general considerations. The actual terms of these securities are very complex, so companies are encouraged to reach out to their DLA Piper relationship partner or a member of DLA Piper’s equity-linked team to assist in the review of the relevant documentation.
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