What is an exchangeable bond (EB)?

An exchangeable bond carries the right for the bondholder, if they wish, to exchange it for securities held by the issuer, such as shares of another company.

When an exchange takes place, both the issuer's assets (the shares it holds) and liabilities (the bonds) decrease, and it differs from a convertible bond in that no new shares are issued. It is also distinguished from a bond with warrants in that no new money comes in.