LONDON- The volume of convertible bond sales has reached its highest levels since 2007 this year as companies rush to raise cash to see them through the economic impact of COVID-19.
Some $89 billion of bonds that give the investor an option to convert into shares have been issued in 2020, according to Refinitiv data. Sales are mostly in the United States, although European issuance is growing as coronavirus lockdowns end and companies look to shore up their balance sheets.
The surge is a contrast to the 2008 financial crisis, when the market for convertible bonds collapsed as bets by hedge funds on low or unrated companies turned sour.
“When the crisis first kicked off, many companies were looking to raise capital and liquidity.
And when the equity markets and debt markets were shut, the (convertibles) market remained open,” said Virginie de Grivel Nigam, head of equity-linked for Europe, Middle East and Africa at JP Morgan.
De Grivel Nigam has helped manage convertible bond sales for Germany’s HelloFresh, Spanish travel-booking group Amadeus, and British online supermarket Ocado.
Convertible bonds are an alternative to equity placements and bond issues, and allow companies with low or no credit ratings easier access to cash than a regular bond issue.
Investors are more likely to buy convertible bonds from such companies because they offer the prospect of equity gains while still paying a coupon and with their principal repaid at maturity if the option to convert into shares is not exercised.
