Convertible Debt

Convertible Debt = Financing secured (usually from a bank) containing an option for the bank to convert the debt into equity if loan covenants are in default.

In a management buy out situation, management most often can contribute significantly less available cash to invest than the net asset value of the target company.

To enable management to acquire a control block of common stock, lenders (usually banks) will provide revolving lines of credit and fixed term loans that are convertible to common shares if agree covenants are in default.

Reference Pages

Deep Equity Plan

Shell Company