Converts Follow Junk Up and??

Tunick, Britt Erica
May 2003
Investment Dealers' Digest;5/12/2003, Vol. 69 Issue 19, p12
Trade Publication
The convertible market, which followed high yield to a bustup April 2003, may finally be coming down to earth. The peak of the frenzy when terms favored issuers appears to have occurred on April 3, when Yahoo! Inc. was able to raise 750 million dollars in a zero convertible that amounted to little more than an out-of-the-money call option. What has drawn high-yield investors to convertibles is the simple fact that the convertible market is currently “busted” —a phrase bankers use when conversion premiums are so high that conversion options no longer add value and convertible bonds end up trading more like straightforward high-yield bonds.Bankers said it would not be surprising to see more convertibles brought to market accompanied by sweeteners such as warrants-vehicles struck at the conversion price of the bonds that enhance investors' conversion ratio by providing them the option to buy a proportionate amount of stock at that price in the future.


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