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Convertible notes

Bonds that can be exchanged for the company's shares. When the share price rises, the notes become more valuable. If they're carried at fair value, that increase shows up as a loss for the company.

Simple example

A company borrows $100 and lets the lender swap the loan for 2 shares instead. If the share price stays at $40, the lender takes the $100 back in cash. If it rises to $75, the lender takes the 2 shares, now worth $150.

Loan: $100or 2 sharesShare price stays $40→ repay $100 in cashShare price rises to $75→ 2 shares worth $150
Made-up numbers, for illustration only.

Related terms

DilutionNew shares make each existing share a smaller slice.Net debtBorrowings minus cash.