In 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

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When a firm calls an overhanging issue, the bondholders generally accept the call price rather than converting the bonds, as the call price usually includes a premium over the bond's face value to compensate for the loss of interest income that the bondholders would have received if the bond had continued to maturity. This premium makes it more attractive for bondholders to accept the call price rather than converting the bonds.

In Case of an Overhanging Issue, If the Firm Were