screw clause

(for convertible bonds)

An informal market term for a contractual clause or provision in the indenture agreement for a convertible bond. A screw clause provides that, upon conversion, the convertible bondholder may not receive accrued interest on the bond. Screw clauses may work in different ways. For example, the first call date may coincide with an interest payment date and the conversion rights may expire just before the interest payment date. In that example, an investor cannot take advantage of the bond's conversion feature without failing to hold the bond long enough to receive the semiannual interest payment. Another example is a mandatory convertible bond that requires conversion before the interest pay date. American Banker Glossary