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I've just read this article on the Business Insider - http://www.businessinsider.in/Twitter-To-Raise-Up-To-1-5-Billion-Via-Convertible-Notes/articleshow/42208345.cms

I wonder what they mean by Convertible Notes? Is it a promise to pay one back in the future? What if the company is not profitable in the future? What happens then? WIll twitter have to sell their offices and make staff redundant to close this debt?

  • en.wikipedia.org/wiki/Convertible_bond - basically it's a bond that can be optionally "converted" into equity later and thus having the lower risk associated with a loan with the upside associated with stocks. – Guy Sirton Sep 13 '14 at 20:34
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Source, see if you have access to it

Convertible notes are often used by angel investors who wish to fund businesses without establishing an explicit valuation of the company in which they are investing. When an investor purchases equity in a startup, the purchase price of the equity implies a company valuation.

For example, if an investor purchases a 10 per cent ownership stake in a company, and pay $1m for that stake, this implies that the company is worth $10m. Some early stage investors may wish to avoid placing a value on the company in this way, because this in turn will affect the terms under which later-stage investors will invest in the company.

Convertible notes are structured as loans at the time the investment is made. The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor. An equity investor is someone who purchases equity in a company.

Example:- Suppose an angel investor invests $100,000 using a convertible note. Later, an equity investor invests $1m and receives 10% of the company's shares. In the simplest possible case, the initial angel investor's convertible note would convert to 1/10th of the equity investor's claim. Depending on the exact structure of the convertible note, however, the angel investor may also receive extra shares to compensate them for the additional risk associated with being an earlier investor

The worst-case scenario would be if the issuing company initially performed well, meaning that the debt would be converted into shares, and subsequently went bankrupt. The converted shares would become worthless, but the holder of the note would no longer have any recourse.

Will twitter have to sell their offices and liquidate staff to close this debt?

This depends on the seniority(priority) of the debt. Debt is serviced according to seniority. The higher seniority debts will be paid off first and then only the lower seniority debts be serviced. This will all be in the agreements when you enter into a transaction. When you say liquidate staff you mean sell off their assets and not sell their staff into slavery.

  • Actually, by liquidate staff I think OP was referring to Soylent Green. – dg99 Sep 12 '14 at 16:03

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