Analysis-High US rates, rising shares a tailwind for convertible bonds
By Shankar Ramakrishnan
(Reuters) — Last week, artificial intelligence server maker Super Micro Computer (NASDAQ:SMCI) achieved something not seen since 2021: It paid 0% interest rate on a $1.7 billion capital raise. Its secret: it issued a bond that can convert to shares.
The offering shows how the market for such convertible bonds is getting a second wind, as investors adjust to the idea that the Federal Reserve will keep rates higher than they expected this year and a benign growth environment drives up stocks.
In just the last two weeks, eight U.S. companies, including Global Payments (NYSE:GPN), NextEra Energy (NYSE:NEE), Lyft (NASDAQ:LYFT) and Sunrun (NASDAQ:RUN), have raised nearly $7 billion through convertible bonds, making it the busiest period for the hybrid securities in over two years.
To make convertibles more attractive to companies, banks are selling insurance and other services to reduce the risk that they give away shares at a discount to the market price. While the services add to the costs of issuance, the savings on interest are higher. Companies can save on average 3% to 4% in interest costs, according to an investor and an analyst said.
«There are significant coupon savings that a company can get in a convertible bond versus a regular bond,» said Santosh Sreenivasan, head of the equity-linked and private capital markets business in the Americas at JPMorgan, the top underwriter of such bonds
BofA Global analysts expect $90 billion to $100 billion of global convertible bond issuance this year, a 20% increase from a year earlier. Some $60 billion to $65 billion is expected in the United States.
David Clott, portfolio manager at Wellesley Asset Management, said he expects volumes to get a boost from
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