Convertible Bonds

[jb207]

Could someone please explain to me how the issuance of convertible bonds lowers the interest coverage ratio and increases it upon conversion.

It is Interest Expense / EBIT, correct?

 

[lola]

ebit / interest expense

 

[volkovv]

when you issue convertible bonds, more bonds are outstanding --> interest expense is higher ---> coverage ratio (EBIT/interest expense) is lower

when you convert, these bonds will become equity ---> interest expense is lower ---> coverage ratio is higher

 

[jb207]

Thanks! I was thinking backwards because my formula was backwards....:-(