Bear Stearns analysts note richening amid shrinking convertible market

By Ronda Fears

Nashville, April 8 - Bear Stearns & Co. convertible analysts note in a report Tuesday that convertible valuations continue to rise amid a shrinking market as new issue flow languishes.

"We were slightly encouraged by the more than double in total deal proceeds compared to last month ($5.02 billion vs. $2.35 billion)," said Rao Aisola, head of convertible research, in the report.

"That being said, we are still lagging behind last year's new issuance by almost 50%."

Through the first quarter of 2002, there were 45 new deals for total proceeds of $26.9 billion. This year, first quarter showed 29 deals for $13.9 billion.

"Combine these figures with the total amount of redemptions so far this year ($10.7B), and we have net new issuance this year of only $3.2 billion," he said.

Previously, he noted, analysts felt the convertible market needed somewhere north of $50 billion in net new issuance for the year to keep the universe healthy. At the end of the first quarter, there was not much of a dent made toward that figure.

"Unless this changes over the coming quarters, we expect valuations to continue to spiral up unless some money is taken off the table," Aisola said.

"With new money being allocated to the high yield universe on a daily basis, we see the possibility of the latter happening as being dim at best."

While there is considerable pent up demand for new paper, he added, there are signs that the willingness of investors to pay up for aggressively priced deals have been stretched in recent months, with several new deals trading below par on the first day during first quarter.

"We continue to see aggressively priced deals being brought to market, although investors seem to be more hesitant about paying up for every deal," Aisola said.

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