Strong after-market performance should encourage issuers, Merrill says

New York, Nov. 4 - Strong performance of new issues in secondary trading during October should help to encourage more issuers to come to market, according to a report Monday by Merrill Lynch & Co. analysts.

New deals had their best month of the year and outperformed the overall convertible market, analysts Tatyana Hube and Yaw Debrah wrote.

Merrill's New Issue Index - made up of deals priced during the past six months - rose 6.4% in the month compared to 2.2% for the overall convertible market. The gain helped reduce the underperformance of new offerings so far this year; year to date the New Issues Index is down 16.35% compared to 14.08% for all convertibles.

Hube and Debrah also saw encouraging signs in the pick up in issuance in the second half of October which resulted in $2.5 billion of issuance for the month.

"A bumpy start for equities at the beginning of the month kept the potential convertible issuers on the sidelines," the analysts wrote. "However, equity markets strength later on in October spurred a cautious but hopeful flow of new convertible issues."

Merrill's count of new issuance so far this year is now $47 billion.

By security type, October saw a balance, with one income-paying bond, one zero-coupon bond, one trust preferred and two mandatories.

"We anticipate balanced issuance to continue through the end of this year, since we expect a broader spectrum of issuers with varied needs to tap the convertible market," Hube and Debrah wrote.

The analysts noted redemptions also picked up pace in October as issuers bought back busted convertibles in the open market. In total $2.3 billion was removed from the market, $1.4 billion of it through repurchases.

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