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Subscription warrants

Basically, there are two main types of warrants, subscription warrants and derivative warrants.

First type of these financial instruments is issued by a company itself, and it allows buyer to get a specified number of compan/s shares in the futurę for already stipulated price.^ It reminds of a cali option on compan/s shares. The main difference is that cali options are usually issued by third parties and they concern already existing shares. When exercised, the cali option doesn't result in a new shares issue. It doesn't affect the issuer in any direct way. To the contrary, when warrants' holder dicides to exercise his instruments, the company issues new shares, so the number of outstanding shares increases.

Such warrants are usually issued with a public offering of debt or equity. < In this case, warrants act like sweetener, because the company can pay less inerest ratę for bonds holders. They also have an influance on value of all compan/s shares and all equity holders. When a warrant is exercised, the company has to sell new shares at below-market price. The compan/s loss affect all equity holders, including these which were warrants holders just before an execution. This fact, in tum, causes warrant to be less wsrth than similar cali option. and for this reason warrants are ussually chaeper than calls.-

Warrants have usually longer time to maturity than cali options. According to Don Chance, their original life lasts normally 3-10 years.- Although warrants usually maturę on a specified datę, some are perpetual.

Companies are willing to attach, usually detachable, warrants to equity or debt issues, because it increases attractiveness of offering. Moreover, it can wDrk to companies' benefit when it comes to tax and accounting area, because fair market value of warrant is treated as equity, rather than as debt (as in the case of convertible bonds, for instance). Another reason for issuing warrants is a need for obtaining additional funds.