Daily Management Review

Share of US companies with investment rating in convertible bond market hits 30%


U.S. companies with investment-grade ratings are becoming more active in placing convertible bonds as they attempt to limit losses from rising borrowing costs brought on by aggressive rate hikes by the Federal Reserve, the Financial Times writes.

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According to Bank of America, investment-grade borrowers have sold $12 billion in convertible bonds this year, accounting for more than 30% of the overall issue. That is three times the average and the highest share in at least ten years. Through 2022, just $2 billion, or 7% of the total issue, of convertible bonds have been placed by highly rated corporations.

Convertible bonds can be traded for company stock. They enable businesses to borrow at rates that are lower than those of conventional bonds and without the potential for instant dilution from the sale of additional shares.

According to Dealogic statistics, businesses issued $6.3 billion in convertible bonds in September and $7.9 billion in August. Since 2021, the two-month span has been the busiest in terms of both the dollar amount and the number of trades.

source: ft.com