Why might a company opt to issue convertible bonds?

A company might opt to issue convertible bonds primarily to enhance its capital structure while managing its level of debt. Convertible bonds provide the flexibility of fixed-income instruments while allowing bondholders the option to convert their bonds into equity, usually at a predetermined price. This characteristic can alleviate some pressure on the company's immediate cash flow requirements, as the bonds typically offer lower interest rates compared to traditional bonds.

By converting to equity, the company has the potential to reduce its overall debt burden and improve its debt-to-equity ratio. This makes it an attractive financing option for companies looking to optimize their capital structure, especially if they anticipate growth that could lead to increased stock prices. The convertible feature adds appeal to investors, often resulting in less stringent cash flow demands in the short term while still positioning the company for long-term financial health.