U.S. convertibles new issuance slows, organic growth turns negative in June: Lehman report

By Rebecca Melvin

New York, June 30 - U.S. convertibles issuance decreased in June and cheapness increased, while organic growth turned negative with $1.9 billion of net outflows versus $11.7 billion of net inflows in May, according to a Lehman Brothers convertibles research report on Monday.

New issuance decreased to $7.08 billion new deals, down more than half from May when new issuance totaled $16.5 billion. The only other month in the last year that exceeded May's level was December 2007, when $17.8 billion in convertibles was priced.

New issue cheapness for June was 3.4%, up from 2.4% in May. The average issue cheapness for 2008 stands at 3.6%, significantly higher than the 1.5% level for 2007.

Investment-grade issuance comprised 54.5% of June's new issue volume. Year to date investment-grade issuance comprised 49.5% of total deal proceeds, compared to 35.9% in 2007 and 47.7% in 2006, according to the Lehman report.

As a result of more large high-yielding preferred and mandatory structures, weighted average yields remained elevated at 6.4% in June versus 6.5% in May, while average premiums were 26.8% versus 26% in the prior month. Year-to-date average new issue terms stand at 6.3% yield and 28% premium, compared with 3.3% yield and 30.8% premium in 2007.

For the year to date, $54.7 billion has been raised in the convertible market through 82 deals, compared with $57.3 billion in the comparable 2007 period, suggesting a run rate of $110 billion, roughly 114% of the total issuance level of $96.4 billion recorded in 2007, according to Lehman Brothers.

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