Convertible deal size continues to shrink as June's average drops to $167 million, Citigroup says

New York, July 2 - Convertible new issue size continued to shrink in June with the $167 million average for the month close to the lowest level in two years, according to research report by Citigroup analyst and director Stuart Novick.

The level of activity picked up with 22 new deals during the month compared to 19 in May but proceeds dropped 30% to $3.7 billion, Novick said.

At $167 million, the average size was only marginally better than April's $166 million, itself the smallest size in two years.

"Part of the reason for the smaller issues lies in the smaller market cap of convertible issuers and part of the legacy of smaller deals is less secondary market activity in these issuers," Novick wrote.

The average market capitalization of issuers was $1.2 billion in June, the smallest figure since Citigroup began collecting the data at the beginning of 2002.

Anecdotal evidence suggests trading is "choppy at best" and non-existent at worst in these deals, he added.

This could lead investors to become more cautious about committing capital in the first place, potentially creating a vicious circle in which it becomes more difficult to attract investors and harder to trade the deals, Novick warned.

More positively, average terms improved for investors during the month, reaching a yield of 3.42% and an initial conversion premium of 33.9%.

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