A type of convertible that has no current yield because it pays no coupon. However, the bond has a positive yield to maturity because it is issued at a deep discount to par value, and it accretes to par over its life. Consequently, this structure is known as an original-issue discount (OID), as the bond’s coupon is typically below a specific level specified by the tax code.

This bond is a combination of a zero-coupon bond and a convertible bond. Essentially, it is similar to a coupon-paying convertible, but rather than paying the holder interest coupon every year, the issuer increases the principal of the convertible over time by an amount that compensates for the unpaid coupon. A zero-coupon convertible and coupon-paying convertible with identical maturity and call provisions will have approximately the same conversion premium notwithstanding the the difference in compensation to bondholders.