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Managing convertible debt

Convertible debt is a loan that can be converted into shares under agreed conditions, often during a future funding round.

Written by Astrid Doumeizel

Unlike convertible equity, convertible debt is structured as a loan and may include interest, repayment conditions, and a maturity date.

In Unlisted, you can register convertible debt agreements, manage multiple lenders under the same loan, and convert outstanding loan amounts into shares when the agreed conditions are met.

This article explains how to create, manage, and convert convertible debt instruments in Unlisted.

Unlisted allows you to register and manage convertible debt agreements, but does not support digital signing, so all loan terms should be agreed upon and the agreement signed before activation, although you can save the loan as a draft while preparing it.

Creating a convertible debt instrument

Step 1: Enter the loan details

  1. Go to Financial instruments in the left-hand menu.

  2. Open the Convertible debt tab.

  3. Click + Add convertible loan.

A wizard will open to guide you through the creation process.

Start by entering the general information about the loan:

  • Currency: Select the currency used for the loan.

  • Internal loan name: Give the loan a name to easily identify it in Unlisted.

Next, define the conversion terms of the agreement.

For each condition, you can choose whether it applies to your loan:

  • Interest rate: Choose whether the loan includes interest. If yes, enter the agreed interest rate.

  • Fixed conversion price: Choose whether the agreement defines a fixed price per share for conversion. If yes, enter the conversion price.

  • Discount: Choose whether lenders receive a discount when converting their loan into shares. If yes, enter the discount percentage.

  • Valuation cap: Choose whether the agreement includes a valuation cap. If yes, enter the maximum valuation used to calculate the conversion price.

  • Trigger amount: Choose whether a minimum funding amount is required to trigger the conversion. If yes, enter the amount.

Note: If you select a fixed conversion price, the discount and valuation cap options are disabled, as the conversion price has already been defined.

Next, specify the share class:

  • If the share class is defined in the agreement, select it now.

  • If the share class will only be determined at conversion, choose that option instead. You will select the share class when converting the loan.

Finally, enter the relevant dates:

  • Agreement date: The date on which the convertible loan agreement was entered into.

  • Maturity date: The date by which the loan must be repaid, converted, or otherwise settled according to the agreement.

Once all the information is entered, click Add lenders.

Step 2: Add lenders

In the second step, you can register the lenders participating in the loan.

You can add one or multiple lenders under the same convertible debt instrument.

For each lender:

  1. Select an existing stakeholder from your company or create a new one.

  2. If you create a new stakeholder, a side panel will open. Fill in the required information to register the stakeholder.

  3. Enter the loan amount provided by the lender.

  4. Enter the disbursement date.

What is the disbursement date?

The disbursement date is the date on which the lender transferred the loan amount to the company.

For example, if the loan agreement was signed on March 1 but the funds were transferred on March 10, the disbursement date is March 10.

This date is particularly important for loans with interest, as it can be used to determine when interest starts accruing.

Repeat the process for each additional lender.

Once all lenders have been added, click Add documents.

Step 3: Add documents

In this step, you can upload documents related to the convertible loan.

These may include:

  • Signed convertible loan agreements

  • Loan subscription agreements

  • Board resolutions approving the loan

  • Supporting documentation related to the loan and conversion terms

  • Other relevant legal or financial documents

Once you have reviewed the document section, select the option that matches your situation:

  • All documents have been uploaded: You have added all the necessary documents.

  • I will upload documents later: You want to complete the registration now and return to the documents later.

  • No documents to add: There are no documents to attach to this loan.

Then click View Summary.

Step 4: Review and add the loan

The final step displays a summary of the convertible loan.

At the top, you can review the information entered in the previous steps, including the loan details, conversion terms, and lenders.

Check that everything is correct before proceeding.

Invite lenders

You can choose whether to invite the lenders to Unlisted.

We recommend inviting them so they can access their loan information through their personal portfolio.

Save or add the loan

You have two options:

  • Save as draft: Save the loan without activating it. You can return to complete or edit it later.

  • Add convertible loan: Register the loan as active in Unlisted.

Once saved, the loan will appear in the Convertible debt tab on the Financial instruments page.

Its status will be:

  • Draft, if you saved it as a draft.

  • Active, if you added the loan.

Managing convertible debt instruments

The actions available for a loan depend on its status.

Managing a draft loan

A draft loan has been saved but has not yet been activated.

Click the three dots next to the loan to access the available actions:

  • View loan: Review the loan's information.

  • Edit loan: Modify the loan details.

  • Edit subscription: Modify the lender subscriptions associated with the loan.

  • View stakeholder: Access the relevant stakeholder information.

  • Delete: Delete the loan.

How to activate a draft loan

  1. Find the draft loan in the Convertible debt tab.

  2. Click the three dots and select Edit loan.

  3. Go through the wizard and review the information entered in each step.

  4. Make any necessary changes.

  5. On the final step, click Add convertible loan.

The loan will now appear with the status Active.

Managing an active loan

An active loan has been registered in Unlisted but has not yet been converted into shares.

Click the three dots next to the loan to access the available actions:

  • View loan: Review the loan's details.

  • Edit loan: Modify the loan information.

  • Edit subscription: Modify the subscriptions associated with the lenders.

  • View stakeholder: Access the relevant stakeholder information.

  • Convert: Start the process of converting the loan into shares.

  • Delete: Delete the loan.

Converting convertible debt into shares

When the conditions for conversion have been met, you can convert the outstanding loan amount into shares directly from Unlisted.

Step 1: Start the conversion

  1. Go to Financial instruments.

  2. Open the Convertible debt tab.

  3. Find the loan you want to convert.

  4. Click the three dots next to it.

  5. Select Convert.

A side panel will open.

Start by reviewing the loan details, including the information and conversion terms entered when the loan was created.

Make sure everything is correct before proceeding.

Step 2: Choose the conversion method

You can choose between automatic and manual conversion.

Automatic conversion

With automatic conversion, Unlisted calculates the conversion price and the number of shares to allocate to each lender based on the registered agreement terms.

To use this option:

  1. Select Automatic conversion.

  2. Enter the pre-money valuation at conversion.

  3. Unlisted calculates the conversion price based on this valuation and the applicable agreement terms, including any discount or valuation cap.

What is the pre-money valuation?

The pre-money valuation is the company's agreed valuation before receiving the new investment.

For example, if a company has a pre-money valuation of NOK 20 million and raises NOK 5 million in new capital, its post-money valuation will be NOK 25 million.

Unlisted uses the pre-money valuation entered here to calculate the conversion price according to the loan's terms.

Manual conversion

With manual conversion, you define the conversion price yourself.

To use this option:

  1. Select Manual conversion.

  2. Enter the conversion price per share.

Unlisted uses this price to calculate how many shares each lender will receive.

Step 3: Select the conversion details

For both conversion methods, specify:

  • Conversion reason: Select the reason for converting the loan.

  • Share class: If the share class was not defined when creating the agreement, select the share class the lenders will receive.

  • Comment (optional): Add any relevant information or explanation about the conversion.

Step 4: Calculate and manage interest

If the loan includes interest, you can review and adjust the interest calculations during conversion.

Review the interest calculation

Unlisted displays the calculation method used to determine the accrued interest.

Enter the settlement date

Select the settlement date, which is the date up to which interest should be calculated.

Based on this date and the registered loan terms, Unlisted automatically calculates the interest amount.

Choose how interest will be handled

You can choose whether the accrued interest should be:

  • Paid in cash: The interest is repaid to the lenders rather than converted into shares.

  • Included in the conversion: The interest is added to the amount being converted into shares.

Review the interest distribution

Below the calculation, you can see the interest amount allocated to each lender.

Unlisted calculates the distribution automatically, but you can also override the amounts manually.

This is useful when specific interest amounts have been agreed with individual lenders or when adjustments are needed.

Step 5: Enter any loan repayments

If part of the loan is being repaid rather than converted into shares, you can register the repayment in the Loan repayment section.

  1. Enter the total loan repayment amount.

  2. Unlisted automatically distributes the repayment between the lenders.

  3. Review the amount allocated to each lender.

You can also override the repayment amounts manually for individual lenders.

For example, if one lender is receiving a larger cash repayment than another, you can adjust the amounts to reflect what has been agreed.

The repayment amounts will be deducted from the outstanding loan amount used for conversion.

Step 6: Review the conversion summary

Before completing the conversion, review the calculations displayed in the summary.

Unlisted shows:

  • Loan amount: The original amount provided through the convertible loan.

  • Interest: The interest amount included in the calculation.

  • Loan repayment: The amount being repaid rather than converted.

  • Outstanding amount: The remaining amount to be converted into shares.

  • Share price: The conversion price per share.

  • Number of shares: The total number of shares to be issued.

  • Remainder to pay: Any amount that cannot be converted into whole shares and must be settled separately.

Below the summary, you will find a detailed breakdown for each lender, including the number of shares they will receive and any remaining amount to be paid.

How share rounding works

Since shares must be allocated in whole numbers, Unlisted calculates the maximum number of whole shares that can be issued based on each lender's outstanding amount and the conversion price.

For example, if a lender has NOK 10,000 to convert and the share price is NOK 300, they can receive 33 shares.

The remaining NOK 100 is not enough to purchase another whole share.

When this happens, Unlisted indicates the remaining amount that must be paid to the lender as a supplement.

Review these calculations carefully before completing the conversion.

Step 7: Set the share issue date

Enter the share issue date, which is the date on which the new shares will be issued.

You can then choose between:

  • Save as draft: Save the conversion details without completing the conversion.

  • Convert and issue shares: Complete the conversion and issue the shares.

If you choose to convert, Unlisted will ask you to confirm the action.

Review the information one final time and confirm the conversion.

Step 8: Review the converted loan

Once the conversion is completed, the loan will appear with the status Converted in the Convertible debt tab.

For converted loans, the available actions are:

  • View loan: Review the original loan details.

  • View stakeholder: Access the stakeholders associated with the loan.

Important: Once a convertible loan has been converted, it can no longer be edited. Make sure all the information, interest calculations, repayments, and share allocations are correct before confirming the conversion.

Confirming a capital increase

If the conversion of your convertible loan triggers a capital increase, you must also confirm the resulting transaction.

To do so:

  1. Go to the Transactions page.

  2. Find the transaction created by the conversion.

  3. Review the transaction details.

  4. Confirm the transaction.

Once the transaction is confirmed, the newly issued shares will be reflected in your cap table.

Conclusion

Unlisted allows you to manage the full lifecycle of your convertible debt instruments, from registering the initial loan to converting the outstanding amount into shares.

You can register multiple lenders under one loan, define conversion terms, calculate interest, manage repayments, and review the final share allocation before conversion.

Remember that converted loans cannot be edited, and that any resulting capital increase must be confirmed on the Transactions page to update your cap table.

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