Morgan Stanley’s convertible bond deal for Kestrel Solutions was the first outing for an innovation the firm has dubbed a “going-public convertible debt offering”. It offers an effective solution to two problems: first, it satisfies a demand from investors who want to participate in a firm’s potentially significant upside following an IPO but who cannot invest in IPOs or in companies which are private, or both. And second, it provides a cheaper source of funding for a company than a last round of mezzanine or venture capital.
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