Actionable Ideas for Companies and Sponsors
Strong Convertible Markets Continue
Robust equity markets, low-interest-rate environments and convertible bond supply/demand imbalances continue to drive a strong convertible issuance environment in the U.S. and Europe. Deals with aggressive price talk at launch are achieving both tighter coupons and higher premiums as well as increased deal sizes during the marketing periods.
United States: (1) Attractive Terms: 26 of 32 offerings (82%) year-to-date priced at the midpoint or better of marketed price talk; (2) Offerings Upsized: 28 of 32 offerings (88%) year-to-date were upsized; and (3) Market Open to Convertible Preferreds: The lowest convertible perpetual preferred dividend in 13 years was priced in February (3.75% dividend and 25% conversion premium).
Europe: (1) Attractive Terms: 8 of 13 offerings (62%) year-to-date priced at the midpoint or better of marketed price talk; (2) Country and Industry Diversification: Recent issuance has been heavily diversified by both country and sector; and (3) Market Open to Mandatory Convertibles: Two multi-billion-euro/dollar mandatory offerings have been executed in Europe recently, and future European mandatory issuance should be driven by recent revisions in accounting standards that result in mandatory convertibles receiving at least 80% equity treatment and no mark-to-market requirement.