Example
Anacomp - facing bankruptcy in the mid-1980s
proposed to exchange the convertible 137/8
percent bonds for convertible stock notes with higher
conversion ratio (increased to 250 shares per bond
As the stock price recovered to $8 (original conversion price was $17.50) in mid-1987, the new convertible stock notes had an intrinsic value of 200% of par.
This illustrates the advantage of being a creditor rather than a shareholder when a company’s fortunes change.