Synthetic Convertible Bonds

Synthetic convertible bonds are corporate bonds that give the investor the right to convert them into shares of a company that is not the issuer of these bonds.

This category of bonds has parameters that are typical for ordinary convertible securities (conversion ratio, conversion premium, etc.) The main difference is the area of responsibility of the issuer: he is responsible only for the debt part of the security, while another, usually not affiliated with the issuer company.

Most often, the issuer of synthetic convertible bonds are investment banks offering services to clients in the creation of such products. Most reverse convertible bonds are synthetic.

As a result, synthetic convertible bonds have a number of advantages over conventional convertible bonds:
1. Higher credit quality due to risk diversification within one instrument.
2. No additional debt burden on the share issuer.
3. The ability to customize the tool for the needs of a particular investor.

Examples of a synthetic convertible bond:
GS Finance Corp, 0% 5jun2023, USD

Barclays Bank PLC, 0% 4feb2025, USD