Issuers contemplating a financing should take note of new accounting guidance affecting certain convertible

securities. Cash-settled convertible bonds have been a popular means of financing for issuers because the

issuance of these bonds had a less dilutive effect on earnings per share than did the issuance of other securities. However, in May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (“FSP”)

APB 14-1,1 which requires issuers to separately account for the liability and equity components of convertible debt

instruments that may be settled partially or wholly in cash. The FSP will apply to financial statements for fiscal

years beginning after December 15, 2008 and interim periods within those years. The FSP also will apply

retrospectively for previously existing cash-settled convertible debt instruments, but it will not apply to

instruments previously issued but that are not outstanding during any financial period presented. As we discuss

below, application of this accounting standard may cause issuers to favor other securities over cash-settled

convertible debt instruments, may motivate issuers and financial intermediaries to structure convertible securities

differently, and may serve as a catalyst for restructuring existing transactions.

See full newsletter for more information.