Thomson Reuters proposes changes to convertibles indexes methodology

By Angela McDaniels

Tacoma, Wash., Sept. 4 – Thomson Reuters has proposed some changes to the methodology it uses for its convertibles indexes.

The company listed three key changes.

First, the definition of investment grade will be extended to include issuer ratings. Issuer ratings will only be considered when there are no issuer-level ratings, and the issuer rating of any guarantor will take precedence over the rating of the bond issuer.

Second, the allocation of country for an issue will now be based on the primary exchange of the underlying asset. The previous approach was a qualitative decision.

Third, the quarterly reselection process will be based on quantitative selection and user feedback. The company said that previously, recommendations were based on a combination of quantitative and qualitative decisions.

For the reselection effective Oct. 8, there will be a much larger number of changes than usual, Thomson Reuters said. The company expects the number of adds and drops together to exceed 50 issues.

If the proposed changes had been applied to the current index, 28 issues would be classified as investment grade that were previously not classified as such and 13 issues would be reclassified to a different region.

Quantitative guidelines

The key changes to the quantitative guidelines are as follows:

• The qualifying price test no longer applies to U.S. issues;

• The traded value test is now based on a percentage of market capitalization;

• Issues with a traded value greater than or equal to 7% of market capitalization will be recommended as a hold;

• Issues with a traded value greater than or equal to 14% of market capitalization will be recommended as an add; and

• Issues with no ISIN code are excluded from consideration.

There was no change to the thresholds for issue proceeds or market capitalization.

Minimum liquidity

In addition, the minimum liquidity guidelines for new issues have been amended as follows:

• The traded value threshold is 7% of market capitalization. Previously, it was $50 million;

• The qualifying prices threshold no longer applies to U.S. issues; and

• The guideline regarding issues greater than $1 billion has been removed.

The company is accepting feedback on the proposed changes through Sept. 10 at CB_Index_Feedback@ThomsonReuters.com.

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