New convertible issues down in June but up significantly from 2006 levels, Lehman Brothers says

By Evan Weinberger

New York, July 31 - New issuance in the convertibles market slowed significantly and there was a net outflow from the convertibles market in July, according to a report released Tuesday by Lehman Brothers. According to the report, however, convertibles issuance is significantly up from 2006 levels.

New issue cheapness rose in July, the report says, with conversion premiums dropping significantly from June and the weighted average yield remaining unchanged.

But the report didn't carry only sour news for June. The percentage of new issues put out by investment-grade rated companies was significantly higher in July than for the previous six months of 2007 and overall, the total cash volume raised through new convertibles issuance is on pace to race past the total for 2006.

The dollar volume of new convertibles issues in the United States fell to $5.3 billion in July, down from $8.2 billion in June, according to the Lehman report.

New issue cheapness rose to 1.36% in July, compared with 1.04% in June. Overall, new issue cheapness is at 1% for the year, down from 1.25% for all of 2006.

At the same time, the report, compiled by Lehman Brothers convertibles analysts Venu Krishna, Brendan Lynch, Manoj Shivdasani and William Gioielli, says that $4.1 billion flowed out of the convertibles market in July, while for the year organic growth stands at $24.8 billion.

Redemptions totaling around $7 billion, highlighted by a $2 billion redemption by education loan giant SLM Corp., are part of the reason for the overall outflow from the convertibles market.

While yields remained at 3.6% in July, unchanged from June levels, the report says that conversion premiums fell to an average 25.1%, down from 33.2% in June. For the year, the average weighted yield stands at 3.2% with an average 32% conversion premium, up from a 2.8% average yield and 24.8% premium in 2006.

On the plus side of the ledger, new convertibles from investment-grade companies made up 44.7% of July's new issue volume, compared to 30.6% for the year to date.

Overall, a total of $60.8 billion has been raised through new convertibles issues so far in 2007 through 133 deals. In comparison, by the end of July 2006, $37.4 billion had been raised. Lehman Brothers has the convertibles market on pace to raise $104.8 billion in 2007, a 149% jump from the $70.3 billion raised in all of 2006.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.