In the case of an overhanging issue, if the firm were to call the issue, the bondholders would accept the call price rather than convert the bonds.

Question

Quizplus · Accepted Answer

If a bondholder has an overhanging issue, they may be hesitant to convert the bonds, as doing so would mean selling the underlying stock and potentially depressing its price, resulting in losses for the bondholder. Thus, if the firm chooses to call the bonds, the bondholders would likely accept the call price, which is typically higher than the conversion value.

In the Case of an Overhanging Issue, If the Firm