c. Convertible Debt-Holding Lenders' Financial Benefit
In between equity financing and debt financing there lives the hybrid known as convertible debt, n243 which requires some discussion. Convertible debt is so-called because it is a loan that can be turned into equity (stock ownership). n244 Usually, the conversion takes place upon the occurrence of a triggering event or events, such as a revenue threshold, a financing threshold, or another business target. n245 If so contractually defined, the conversion could also occur at the election of the lender or the discretion of the company. n246 Until the time the debt is converted into equity, there seems to be no reason the financial benefit test should be different from the above analysis on plain vanilla and "Belgian chocolate" lenders. If, however, the conversion can occur at the discretion of the lender, then the financing is closer to the case of a warrant-holding lender, as detailed below, which raises the question of whether it should be considered a financial benefit.
c. Convertible Debt-Holding Lenders' Financial Benefit In between equity financing and debt financing there lives the hybrid known as convertible debt, n243 which requires some discussion. Convertible debt is so-called because it is a loan that can be turned into equity (stock ownership). n244 Usually, the conversion takes place upon the occurrence of a triggering event or events, such as a revenue threshold, a financing threshold, or another business target. n245 If so contractually defined, the conversion could also occur at the election of the lender or the discretion of the company. n246 Until the time the debt is converted into equity, there seems to be no reason the financial benefit test should be different from the above analysis on plain vanilla and "Belgian chocolate" lenders. If, however, the conversion can occur at the discretion of the lender, then the financing is closer to the case of a warrant-holding lender, as detailed below, which raises the question of whether it should be considered a financial benefit.
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