Lehman report: convertible new issuance strong in May; mandatory issues hit record $10.9 billion

By Rebecca Melvin

New York, May 30 - Convertible new issuance continued strong in May, with $16.4 billion in 20 deals pricing for the month, compared with $12.7 billion in April and $12.6 billion in May 2007, according to Lehman Brothers' convertible research.

May was the strongest month for mandatory issuance, with a record $10.9 billion issued, according Lehman data going back to 2002.

Of that amount, American International Group Inc. accounted for about half, with $5.88 billion of mandatories issued on May 8. The other deals were Fannie Mae's $2.25 billion of mandatories issued on May 9, Legg Mason's $1 billion of mandatories issued on May 7 and Archer-Daniels-Midland Co.'s $1.75 billion of mandatories issued on May 29.

As a result of these large, high-yielding mandatories, the weighted-average yields remained elevated at 6.5% in May, compared with 6.7% in April. Average premiums fell to 26% from 30.8%, according to the Lehman new issue trends report published Friday.

For the year to date, average new issue terms stand at 6.2% yield and 28.0% premium, compared with 3.3% yield and 30.8% premium in 2007, Lehman said.

Average cheapness for May was 2.3%, which was down from 4.9% in April. But average new issue cheapness for 2008 stands at 3.6%, significantly higher than the 1.5% level for 2007.

The New York investment bank also noted that organic growth was to the upside, with $11.8 billion of net inflows in May versus $7.7 billion of net inflows in April.

Of new deals, investment grade accounted for 23.1% of new issue volume, while for the year to date, investment-grade issuance accounted for more than half, or 53.5%, of total deal proceeds, compared with 35.9% in 2007 and 47.7% in 2006.

For the year to date, $47.7 billion has been raised in the convertible market in 66 deals, compared with $49.1 billion in the first five months of 2007, Lehman said.

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