Merrill Jumps Into the Convertible Market

Merrill Lynch (MER Quote) is the latest company to decide the convertible bond market is the best place to raise cash in these jittery times.

After the close, the big broker said it may raise $1 billion in a zero-coupon convertible bond offering. The bonds will mature in 30 years, although Merrill may force investors to convert the bonds into stock or take a cash payout in five years. Merrill also said that holders will be able to require it to repurchase the convertibles, commonly referred to as putting the bonds back to the company, on several occasions, but it hasn't yet specified when those put dates would be. Merrill's broker-dealer unit will be the sole manager of the offering.

Merrill was off 3.7% in after-hours trading Wednesday on Instinet. The offering, if converted into equity, would dilute current investors' stock holdings, though Merrill's $46 billion market cap suggests the damage shouldn't be great.

With the equity market lackluster and corporate bond spreads wide, convertibles have become a hot market. In 2001 U.S. companies issued $102 billion in convertible bonds -- nearly twice the 2000 tally. ...