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Convertible Loan Notes

For investors looking for high growth, convertible loan notes could be a useful tool particularly in more speculative markets. Otherwise known as CLN or a convertible note, this is a type of short-term debt that can be converted into equity shares. It’s important to note that a convertible loan note is for equity in the future and shouldn’t be expected initially. This conversion to equity usually occurs when a certain date is met or during the next qualifying funding round, which will be outlined in the terms of the convertible loan note.

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How Does A Convertible Loan Note Work?

A convertible loan note can be negotiated at a minimal expense and quickly. There are three key features of a CLN; qualified financing, conversion discount and valuation cap. The valuation cap represents the maximum value that the convertible loan note can be converted into shares. This additional award is offered for taking a risk early on and will provide an equity upside if the company is successful.

An appealing advantage of a CLN is that investors can benefit from the added security and income of debt whilst retaining the potential upside of equity.

For investors looking for high growth, Convertible Loan Notes could be a useful tool  particularly in more speculative markets.

There are strict criteria and characteristics we look for in companies before raising capital through Convertible Loan Notes:

Undervalued
The companies need to be trading at a significant discount to:

  • Asset value
  • Future asset value
  • Direct competitors trading on the markets.

Capital growth
The companies must have:

  • A clear two year growth plan
  • A strong management team
  • A successful track record in raising capital from the markets
  • A proven trading history in public markets.

Income
The loan notes will typically be:

  • Repayable over two years
  • Guaranteed by assets held by the listed companies
  • High yielding, with quarterly payments.

CSS Partners will provide investors with a high level of information on each investment opportunity both prior to investment and also by providing monthly reports so that investors are updated on progress.

Investors will be able to make informed decisions from:

A detailed placing document
Each investment opportunity will be accompanied by a placing document that will include:

  • Full background on the listed company
  • Details of the company’s growth strategy
  • Full details of the loan instrument
  • Terms of conversion.

Monthly updates
This will include:

  • All RNS announcements that month
  • The latest share price
  • The relevant conversion price available to investors.

We hope the service offered by CSS Partners will provide investors with sufficient information to make informed investment decisions and speculate with confidence.

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  • CSS Partners LLP is registered as a Limited Liability Partnership in England and Wales, No. OC311440.  CSS Partners LLP is an appointed representative of Charles Street Securities Europe LLP which is authorised and regulated by the Financial Conduct Authority.

    Investment in smaller companies carries a high risk: it is highly speculative and investors must have no need for liquidity and must be able to withstand a total loss of investment. Past performance is not an indication of future performance and investments may go down as well as up. Investments offered by CSS Partners are not suitable for all investors.

    The CSS Partners private client service is only available to high net worth, sophisticated, self-certified sophisticated and restricted investors only.

    This webpage is published for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Any offering of investments is by a separate investment memorandum which supersedes the contents of this webpage.