The mass of convertible debt that got brought to market in the last two years may be coming home to roost.Companies have been issuing so-called converts, or bonds that turn into stock at a predetermined price, as never before. After growing by 45% in 2000, convertible issuance doubled last year, reaching $102 billion. With the stock market sputtering and lenders turning conservative, converts enticed issuers by dangling a juicy stock payout -- down the road, meaning the deals weren't immediately dilutive to shareholders. But with the economy stagnant and the tech-spending bubble long deflated, debt of all kinds has become a losing proposition. In the wake of the failures of debt-heavy Enron and Global Crossing, risk-averse stock and bond investors have been distancing themselves from practically any company with big interest payments ahead; even
Rust Belt?The company that's had the worst problem with convertibles lately is Tyco ( TYC). Tyco has issued some $7.7 billion in so-called zero-coupon convertibles, which give investors the right to sell the bond back to the company, or "put" it, at certain times.
|Shiny New Convertibles |
Convertible debt issuance on the rise ($billions)
|Source: Thomson Securities Data|