On the role of warrants in corporate finance

This is a very interesting example of the role played by warrants in corporate finance. According to this CNBC article, “The warrants were part of a 2011 deal to help out the lender, which was struggling with legal bills in the aftermath of the subprime mortgage crisis.”

Warrants convey the right (but not obligation) to buy common stock at a given price price for a given period of time. Similarly, call options also convey such a right. However, there are important differences between warrants and call options, as outlined in the Investopedia article entitled “Warrants and Call Options.”

Warren Buffett’s conglomerate is converting warrants into 700 million common shares, at a price that results in a paper profit of roughly $12 billion.

Leave a Reply

Your email address will not be published. Required fields are marked *