Convertible Preferred: Advanced Concepts
Chapters in this video
- 0:00 Anti-dilution covenant and the stock split threat
- 1:20 Math walkthrough: 2-for-1 split adjustment
- 3:06 Advanced math: 3-for-1 split proportional logic
- 3:59 Exam traps on holder protection and ratio direction
- 4:30 Sinking fund provision basics
- 5:22 Risk tradeoff: credit risk down, call risk up
- 6:17 Preferred sinking fund vs. bond sinking fund
- 6:48 Rapid-fire exam recap
What this video covers
- Why anti-dilution covenants protect the holder, not the issuer, and what triggers a mandatory conversion ratio adjustment
- How to calculate the new conversion ratio and conversion price after a 2-for-1 or 3-for-1 stock split so the conversion value stays flat
- The exam shortcut for post-split ratios: multiply the pre-split conversion ratio by the split factor
- Why a sinking fund provision lowers credit risk for the preferred stockholder through systematic retirement of shares
- How sinking funds increase call risk on individual shares while improving overall price stability
- The direct parallel between preferred stock sinking funds and bond sinking funds that test writers use to flip the question format
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