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Apex Trader Funding (ATF) - News

Barron's Convertible-Bond Sales Are Booming. MicroStrategy, SoFi, Albemarle Plan Deals.

Convertible-bond issuance is surging as corporations take advantage of attractive financing rates and a strong stock market.

In the past 24 hours, eight new convertible-bond deals totaling $5.2 billion have been announced, according to BofA Securities.

They include sizable transactions from Bitcoin holder  MicroStrategy, lithium miner  Albemarle, rare-earth miner MP Materials as well as lender and fintech SoFi Technologies.

Other deals are from iRhythm Technologies, Kosmos Energy, Tandem Diabetes Care, and LivaNova.  

These are proposed deals and conceivably might not get priced but it’s unusual for transactions to be pulled.

The largest planned deal is Albemarle at $1.75 billion, followed by SoFi at $750 million. MicroStrategy’s deal is for $600 million. 

Convertibles are hybrids that often are sold as bonds with fixed interest rates, maturities of five to seven years, and equity conversion features that allow investors to capitalize if the issuer’s stock appreciates. There are about $250 billion of outstanding U.S. convertibles.

Michael Youngworth, the head of convertible securities analysis at BofA Securities, notes that issuance is being driven a strong stock market and a realization by corporate chief financial officers that rates may “remain higher for longer,” In an email to Barron’s, Youngworth also cites the end of blackout periods after corporate earnings.

At a time when convertible-bond issuers face interest rates of 5% to 6% or even higher on regular, “straight” corporate debt with five- to 10-year maturities, convertible yields are much lower because investors like the equity “kickers.” Super Micro Computer recently sold $1.5 billion of five-year convertible bonds with an interest rate of zero percent, and a conversion premium of 37.5%.

The price talk on the MicroStrategy bond deal is for an interest rate of 0.5% to 1% with a conversion premium of 37.5% to 42.5%. Albemarle plans to sell a convertible preferred deal.