Interpreting SIGNs

Volume 22 Number 2

Financial Management, 1993, vol. 22, issue 1

Abstract: The rich variety of securities innovations in recent years continues to intrigue academicians and practitioners alike. The array of innovative securities includes a variety of equity-linked debt securities. On January 28, 1991, the Republic of Austria publicly offered $100 million principal amount of a new equity-linked debt security called stock index growth notes ("SIGNs") in the United States. The SIGNs were scheduled to mature in approximately 5.5 years. They would make no payments of interest prior to maturity. If the value of the S&P 500 is below 336.69 on the maturity date, the holder will receive $10, the initial offering price. If the value exceeds 336.69, the holder will get $10 plus $10 multiplied by the percentage appreciation in the S&P 500 above 336.69. SIGNS may thus be characterized as a package consisting of (i) a 5.5-year triple-A-rated zero coupon note plus (ii) a 5.5-year European call option, or warrant, on the S&P 500 with a strike price of 336.69.

Date: 1993
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