Actionable Ideas for Companies and Sponsors

Optimizing Convertible Issuance Through Concurrent Private Convertible Repurchases

Repurchasing an existing convertible with the proceeds from a new convertible issue enhances deal execution and is the most efficient way to retire an upcoming convertible maturity. This strategy avoids the shorting pressure typically seen alongside a convertible issuance, as investors are able to roll their hedged position into the new deal. Additionally, issuers are able to avoid double interest expense and create anchor demand on a new transaction. Consequently, this private repurchase strategy has accounted for nearly 80% of convertible refinancings over the last three years. With $45 billion of upcoming convertibles maturing in the next three years and rising interest rate expectations, we expect to see a continued acceleration of convertible refinancing activity using this strategy. Jefferies has recently employed this strategy on several convertible transactions, including Retrophin’s $275 million and CalAmp’s $230 million convertible offerings.