Convertible Market Trends

• The convertible market is now over to USD 500 billion globally and over USD 250 billion in the US*.
• Liquidity and diversification have increased substantially with the growth of the market. The quality of issuers has also improved as almost 40% of global convertibles are investment grade rated and the vast majority of the issuers are large cap (>$5 billion market cap) or mid cap (>$1 billion market cap) companies.
• Convertibles have a broad cross-over investor base which lends support to the asset class. Both traditional fixed-income and equity investors have the ability to purchase convertibles, unlike other asset classes such as bank loans.
• Key drivers that make the current convertible market attractive:
  
  • More higher coupon convertibles in place of new issues with low or zero coupons
  • Shorter maturities from 25-30 years to 4-10 years on average which provide enhanced downside protection
  • Extended call protection up to 5-7 years in many cases from 2-3 years
  • Common use of ratchet and dividend protection features that protect investors from the negative impact of takeovers and dividend increases
  • Conversion premiums on new issues have come significantly allowing for greater participation in the upside of the underlying stock
  • High quality issuers. Almost 40% of global convertibles are investment grade rated and the vast majority of the issuers are large cap (>$5 billion market cap) or mid cap (>$1 billion market cap) issuers.

*Source: UBS Convertible Research/MACE