Mezzanine
Mezzanine is an Italian word meaning a lounge space between the first and second floors of a building, and refers to convertible bonds (CB) and bonds with warrants (BW), which sit at an intermediate risk level between bonds and stocks. In a rising stock market, they can be converted into stocks to realize capital gains, and even in a falling market, because they are bonds, the principal is guaranteed, and investors can also benefit from adjustments to the bond exercise price (refixing).
The key to mezzanine investing is to screen investments by assessing the issuing company's likelihood of default.
This name is often attached to products that have the characteristics of both stocks and bonds, or to funds that invest in stocks and bonds simultaneously.
However, the name mezzanine is not necessarily applied only to products with both stock and bond characteristics; it is also often used for derivative financial products with an intermediate level of risk.
Including the subprime mortgages that were the main culprits of the 2008 financial crisis, various CDOs (collateralized debt obligations) issued on the basis of mortgage bonds were also divided into several tiers and assigned credit ratings according to their risk—that is, the probability of default of the bonds included in the CDO. Here too, the term "mezzanine CDO" was used for CDOs with an intermediate level of risk.
Topics: Convertible Bond,Bonds with Warrants,Exchangeable Bond,stock,Bonds
Category: Wiki/Economy