Derivative Accounting – The Ways Out

Posted by & filed under Derivatives, Equity-Linked Transactions.

Over the last three days, I went through the accounting definition of a derivative. If you have an agreement, or embedded feature within an agreement, that meets the definition, then derivative accounting has entered your life. Unless, of course, one of the scope exceptions applies! And there are many. The vast majority of derivative accounting… Read more »

Conventional Convertible Debt

Posted by & filed under Debt, Equity-Linked Transactions.

Conventional convertible debt is a technical definition. To be considered conventional convertible debt, the holder may only realize the value of the conversion option by exercising the option and receiving the entire proceeds in a fixed number of shares or the equivalent amount of cash determined at the discretion of the issuer. Additionally, the ability… Read more »

Registration Rights Agreements

Posted by & filed under Derivatives, Equity-Linked Transactions.

A registration rights agreement (RRA) typically accompanies an equity-linked transaction and spells out the registration obligations of the issuer. Typically, these obligations are designed to ensure that the shares underlying the equity-linked instrument(s) are freely tradable. In many cases, the only means for the investor to receive return of invested capital and a return on… Read more »

Derivative Settlement Alternatives

Posted by & filed under Derivatives, Equity-Linked Transactions.

Settlement alternatives, and the party that controls the settlement alternatives, figure significantly in determining the accounting treatment of an equity-linked freestanding or an embedded derivative. The pre-Codification guidance was contained primarily within EITF-0019, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company‚Äôs Own Stock. The Codification guidance is buried within ASC… Read more »