Corning mandatory conversions bring down convert market by 11 bps

By Ronda Fears

Nashville, Dec. 2 - Conversions of $330 million of Corning Inc.'s 7% mandatory convertible prompted Merrill Lynch & Co. to make a one-time downward adjustment to its convertible index, according to Yaw Debrah, the firm's head of U.S. convertible research.

"A doubling in the value of the underlying stock of this convertible since Nov. 1 has resulted in a relatively material overstatement of the U.S. convertible indices due to the unreduced market value of this convertible," Debrah said in a report Monday.

"As a result of the restatement, the All U.S. Convertibles index has been adjusted downward by 11 basis points."

Corning disclosed in an Oct. 30 filing with the Securities and Exchange Commission that $330 million in face value of its 7% convertible mandatory preferred, or 57.4% of the original issue size, was converted during third quarter.

Because the reduction in the market size of the Corning convertible had such a significant impact on convertible indexes, Debrah said Merrill Lynch decided to make a one-time downward adjustment to its indexes.

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