A structured convertible security is a convertible that has, in addition to the standard features of a vanilla convertible/ traditional convertible debt, specific structured features and conditions that enhance protection for its holders. Structured convertibles are highly liquid, due to the fact that the fixed income and equity components are held separately, each maintaining its own liquidity profile.
Debt and equity components issued by large, widely traded firms are more liquid and as such can be sold separately and with minimum transaction costs in the deeper fixed income and equity markets. Liquidity of structured convertibles can be more sought under turbulent market conditions when classic convertible bond liquidity gets severely impacted.
The maturities of such convertibles range between 3 and 5 years. Structured convertibles are usually created to accomplish specific financing requirements such as better protection, more liquidity, etc.
The main examples of structured convertible securities with limited upside potential include:
- Yield enhanced stock (YES).
- Yield enhanced equity linked debt securities (YEELDS).
- Equity linked securities (ELKS).
- Targeted growth enhanced terms securities (TARGETS).
- Common linked higher income particular debt (CHIPS).
- Preferred equity redemption cumulative securities (PERCS).
- Structured yield product exchangeable for common stock (STRYPES).
- Performance equity linked redeemable quarterly-pay securities (PERQS).
