Actionable Ideas for Companies and Sponsors

Convertibles with Embedded Warrants and Convertible Preferreds

Given the continued strength of the convertible market, issuers are not only achieving aggressive terms but also are
achieving aggressive structures that have not been seen for over three years. Convertibles with Embedded Warrants
have returned, allowing issuers to achieve higher premiums for the same coupon as a traditional convertible. This
structure may be particularly appealing for issuers who prefer a high premium, but do not achieve the tax
deductibility of the call spread alternative. Convertible Preferreds are also returning to the market and investors have
been receptive. As a result, 80% of convertible preferred issuance in 2012 occurred in the second half of the year.
Convertible Preferreds, which receive 50% equity credit from the ratings agencies, can offer an equity alternative that
is less dilutive than common stock.