Actionable Ideas for Companies and Sponsors
Convertible Supply / Demand Imbalance in U.S. and Europe Driving Aggressive Terms for Issuers
The convertible supply / demand imbalance continues. In the U.S., year-to-date issuance of $15.3 billion has been substantially outpaced by $25.6 billion of redemptions. In Europe, year-to-date issuance of $12.9 billion compares to $14.2 billion of redemptions. This imbalance, combined with low interest rates and a strong equity market backdrop, has resulted in extremely attractive pricing for issuers, including where 1) 40% to 60% conversion premiums are achievable without call spreads, and 2) negative coupon/yield convertibles (i.e., investors pay the company to invest) may be achievable for some issuers.
Also, investors are comfortable with a broad range of use of proceeds including: refinancings, opportunistic capital raises, levered buybacks, concurrent offerings (with high yield, bank debt or equity) and M&A financing. In addition, "existing convertible issuers" are achieving even more attractive terms in conjunction with refinancing their outstanding convertible issues, because, in the face of a shrinking convertible market, convertible investors are interested in maintaining exposure to proven issuers.