Actionable Ideas for Companies and Sponsors

Convertible Bonds Issuance to Refinance High Yield Bonds

European corporates with upcoming bond or loan maturities in the next two years should consider a liability management transaction by issuing new convertible bonds early, as credit spreads are expected to remain volatile and interest rates to increase further. Convertible bonds offer significant savings compared to bonds and loans in a rising interest rate environment and, with equity valuations still at depressed levels, allow corporates to eventually issue equity at a significant premium to current stock prices, while reducing dilution. Illustratively, the coupon of a new 5-year high-yield bond for a BB credit quality corporate could be approximately five percentage points higher today compared to the beginning of 2022, while the cost of a convertible bond of a company with a similar profile may only be up two and a half percentage points over the same period.