In finance, an exchangeable bond (or XB) is a straight bond with an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions. An exchangeable bond is different from a convertible bond. A convertible bond gives the holder the option to convert bond into shares of the issuer.

The pricing of an exchangeable bond is similar to that of convertible bond, splitting it in straight debt part and an embedded option part and valuing the two separately.

[edit] Pricing

Price of exchangeable bond = Price of straight bond + Price of option to exchange

• Price of an exchangeable bond is always higher than the price of a straight bond because the option to exchange adds value to an investor;
• Yield on an exchangeable bond is lower than the yield on a straight bond.

[edit] External links

• First Exchangeable Bond in Central and Eastern Europe issued by EBRD
• Dixons mulls Wanadoo exchangeable bond issue
• Allianz: Bonds and Exchangeable Bonds

v • d • e Bond market Bond · Debenture · Fixed income Types of bonds by issuer Agency bond · Corporate bond (Senior debt, Subordinated debt) · Distressed debt · Emerging market debt · Government bond · Municipal bond · Sovereign bond Types of bonds by payout Accrual bond · Auction rate security · Callable bond · Commercial paper · Convertible bond · Exchangeable bond · Fixed rate bond · Floating rate note · High-yield debt · Inflation-indexed bond · Inverse floating rate note · Perpetual bond · Puttable bond · Reverse convertible · Zero-coupon bond Bond valuation Clean price  · Convexity  · Coupon yield  · Credit spread  · Current yield  · Dirty price  · Duration  · Nominal yield  · Yield to maturity Securitized products Asset-backed security · Collateralized debt obligation · Collateralized mortgage obligation · Commercial mortgage-backed security · Mortgage-backed security  · Yield-curve spread Bond options Callable bond  · Convertible bond  · Embedded option  · Exchangeable bond  · Option-adjusted spread  · Puttable bond  · Z-spread Institutions Commercial Mortgage Securities Association (CMSA) · International Capital Market Association (ICMA) · Securities Industry and Financial Markets Association (SIFMA)

v • d • e Corporate finance and investment banking Capital structure Senior secured debt · Senior debt · Second lien debt · Subordinated debt · Mezzanine debt · Convertible debt · Exchangeable debt · Preferred equity · Shareholder loan · Common equity · Pari passu Transactions (terms / conditions) Equity offerings Initial public offering (IPO) · Secondary Market Offering (SEO) · Follow-on offering · Greenshoe (Reverse) · Book building Mergers and acquisitions Takeover · Reverse takeover · Tender offer · Poison pill · Freeze-out merger · Tag-along right · Drag-along right · Control premium · Divestment · Demerger Leverage Leveraged buyout · Leveraged recap · Financial sponsor · Private equity · Bond offering · High-yield debt · DIP financing Valuation Financial modeling · Business valuation · stock valuation · APV · DCF · Net present value (NPV) · Cost of capital (Weighted average) · Comparable company analysis · Enterprise value · Tax shield · Minority interest · EVA · MVA · Terminal value · Real options analysis List of investment banks · List of finance topics