Carnival Corporation is a global cruise company and one of the largest vacation companies in the world. The notes to its financial statements for 2009 include the following:
CONVERTIBLE NOTES
At November 30, 2009, Carnival Corporation’s 2% convertible notes (“2% Notes”) are convertible into 15.2 million shares of Carnival Corporation common stock. The 2% Notes are convertible at a conversion price of $ 39.14 per share, subject to adjustment, during any fiscal quarter for which the closing price of the Carnival Corporation common stock is greater than $ 43.05 per share for a defined duration of time in the preceding fiscal quarter. The conditions for conversion of the 2% Notes were not satisfied during 2009 and 2008. Only a nominal amount of our 2% Notes have been converted since their issuance in 2000.
On April 15, 2011, the 2% note holders may require us to repurchase all or a portion of the 2% Notes at their face values plus any unpaid accrued interest. In addition, we currently may redeem all or a portion of the outstanding 2% Notes at their face value plus any unpaid accrued interest, subject to the note holders’ right to convert. Upon conversion, redemption or repurchase of the 2% Notes, we may choose to deliver Carnival Corporation common stock, cash or a combination of cash and common stock with a total value equal to the value of the consideration otherwise deliverable.
Source: Carnival Corporation, Annual Report 2009.
Required:
1. Explain the various features of these notes.
2. When the notes were issued, interest rates were much higher than the 2 percent offered by the company. Why would an investor accept such a low interest rate?