The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called a bond’s allows a bondholder or preferred stockholder to convert their bond or preferred share, respectively, into a specified number or value of common shares.

Indenture; convertibility provision

Explanation:

Indenture refers to a legal contract that bounds the bondholder and the issuer. This contract specifies important features of the bond like its type (convertible or callable), maturity date, interest payment time and rate. In other words, it includes all the terms and conditions related to the issue of bond.

One of the types of bonds is convertible bonds. Due to the provision of convertibility, these bonds can be converted to a stipulated number of common shares that are decided in advance.

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