New convertible issuance rebounds in October; total 2007 new issues outpacing 2006 totals, Lehman Brothers says

By Evan Weinberger

New York, Nov. 1 - New convertibles issuance rebounded in October from its September slumber, according to a new report from Lehman Brothers released Thursday. New issuance for 2007 is poised to streak past new issuance for 2006, the report said.

Companies raised $3.5 billion through 11 new deals in October, more than doubling the September output of $1.8 billion.

For the year, 157 new convertibles have raised $73 billion, nearly $3 billion more than all of 2006. Companies are on pace to raise $87.6 billion. By the end of October 2006, companies had raised $48.2 billion. If the current pace holds, new convertibles will raise roughly 125% of 2006's total of $70.3 billion, the report concluded.

The report, compiled by Lehman Brothers convertibles analyst Venu Krishna, said that new deal cheapness fell to 2.49% for October. New deal cheapness stood at 4.31% in September. Average new deal cheapness is 1.38% for 2007 so far, up from the 1.20% of 2006.

Only $100 million in new money flowed into the convertibles space for October, leaving organic growth flat. It stands at $25.5 billion through October.

Nearly half of October's new issuance came from investment grade companies, as compared with 31.3% for the year to date. The 2007 percentage of investment grade entrants into the convertibles space is down from 47.4% in 2007 and 38% in 2005.

Weighted-average yields were up to 4.8% in October from 2.9% in September, and conversion premiums swelled to 37.5% from 33.3%. For the year, new issues have come in at an average 3.5% yield and 31.6% conversion premium, up from an average 2.8% yield and 24.8% premium for 2006.

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