Complex Securities Valuation

Convertible Securities Valuation

Valuing convertible financing instruments such as debt or preferred stock can be tricky. Since the securities are hybrid instruments (containing both equity and debt features), fair value needs to be measured upon issuance and may be required on a quarterly mark-to-market basis. But convertibles tend to have idiosyncratic features that affect the value of either the equity component or the conversion option. Even the slightest complexity within these instruments can create the potential for accounting surprises and unexpected earnings volatility.

Convertible Securities Valuation Services

To gain control of these instruments, we help you:

Evaluate the incremental debt service savings attributable to the conversion feature—i.e., the “cost” to you of the equity upside being given away by not issuing standard debt
Develop fair value estimates for financial reporting purposes
Lock down the appropriate accounting procedure to follow for any convertible instrument based on the guidance in ASC 470, 480, and 815
Determine the interaction between various components of the convertible instrument and the effect of these on earnings per share
Test various mixes of stock and bonds for hedging convertibles
Analyze how changes in parameters, such as share price or interest rate, can affect future valuations and the equity component thereof
Present the valuation results and core valuation model underpinnings to your external auditor to assist them in performing their audit procedures

Develop rigorous convertible debt valuations, manage uncertainty around future payouts, and deploy a stable, repeatable process for your mark-to-market valuations.

Meet Our Experts

Josh Schaeffer, PhD

Managing Director, Valuation & HR Advisory Services

Nathan O’Connor

Managing Director

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