What happens with a mandatory convertible?

A mandatory convertible is a financial instrument that obligates the issuer to convert the debt into equity at a predetermined time or upon reaching certain conditions. This characteristic of converting into stock after a specific period or event is what defines a mandatory convertible.

Investors typically hold these convertible securities for a certain duration, after which they automatically convert into shares of stock, thus providing the holder with ownership in the company instead of cash. This conversion often occurs at a defined conversion ratio, which is usually established at the issuance of the security.

The other options do not accurately describe the nature of mandatory convertibles. While they may involve aspects of trading and debt issuance, they do not correctly encapsulate the fundamental mechanism of mandatory conversion into equity at a designated time or upon specified conditions. This clarity on the mandatory nature of the conversion is crucial for understanding how these financial instruments function and their implications for both the issuer and the investors.