Converts

The answer of course? Convertible debt. I have been wondering why companies don't use converts more instead of equity. Since it is a convert it has built in claims to equity and can give you 'dividends' (interest payments) before the company's corporate tax. It seems to have the benefits of equity (upside potential) with tax efficiency of debt. If I was a company I would issue something like 1000-year converts that are convertible at any time to equity. By making the conversion terms so easy and because you can't simply hold it like regular convertible debt, it is less of a call option and more of a straight equity play. The extremely long term horizon essentially makes it like equity because the convert price will fall if the implicit stock price falls.

There are potential tax implications of the long-term convertible which would make it too equity like, however using derivatives and options (ie create a synthetic equity through a perpetual long / call and short put) I am confident that this structure can be created and be done tax-free.