medium · Private Credit portfolio-management-monitoring-workouts
A growth equity investor holds convertible preferred shares with a conversion price of 10.00. A subsequent 'down round' issues new shares at5.00.
Under a 'Weighted Average' anti-dilution provision, how is the new conversion price determined?
- It remains fixed at $10.00, but the investor is paid cash equal to the value difference upon exit.
- It is immediately reset to $5.00, matching the price of the new financing round exactly.
- It is adjusted downward based on both the lower price and the number of new shares issued relative to the existing shares.
- It is instead adjusted upward to $15.00 per share to compensate the investor for the fund's heightened downside risk.
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