Actionable Ideas for Companies and Sponsors
Convertible Issuance Continues to Accelerate
The pace of issuance in the U.S. continues to accelerate as $8.5 billion, or 38% of total 2013 issuance, has priced since the middle of May. 2013 U.S. convertible issuance of $22.6 billion has surpassed the full-year 2012 total issuance of $21.8 billion, and 2013 European issuance of $14.6 billion is on pace to eclipse the 2012 total of $21.3 billion. Companies continue to tap the convertible market opportunistically to raise capital without a defined use of proceeds.
There are four key themes emerging from recent convertible issuance:
Ultra low cash coupons: The average coupon for convertible debt in 2013 year-to-date is 2.8% versus 3.9% in 2012. Since May, there have been nine technology convertible offerings with an average coupon of 0.9% while still achieving high conversion premiums with an average of 39%.
Pre-funding upcoming maturities: In 2013, 32% of convertible offerings listed debt refinancing as the primary use of proceeds. Companies have pre-funded maturities as far out as December 2015.
Broad issuance across sectors and equity-linked products: In June there was issuance from the consumer, healthcare, industrial, energy, financial, technology and REIT sectors. Recent issuance has included mandatory convertible units, mandatory convertible preferred, cumulative perpetual convertible preferred, cash-settled convertible debt and traditional convertible debt.
Increase in call spread issuance: This year 33% of convertible debt offerings have included a call spread. Since May 1st, 10 of 22 (45%) of convertible debt offerings have included a call spread.