Companies rush to CB market for zero-coupon debt
With share prices at or near record highs, corporations are rushing to lock in low-cost funding through the sale of convertible bonds at a zero-percent coupon.
Led by Alibaba’s US$3.2bn seven-year CB, five companies raised a combined US$5.4bn last week from the sale of five zero-percent CBs. That takes issuance of 0% coupon paper this year to 34 totalling US$37.4bn, up from US$11bn in 2024 across 10 deals, according to IFR data.
“Companies are taking advantage of volatility of their share prices, which benefits the pricing terms,” said one senior banker. “Zero-percent CBs are a surrogate for straight debt.”
For Alibaba, which is using money from the CB to fuel AI expansion, a capped call allows it to offset dilution from the CB up to a share price of US$235.46, a 60% premium to its Hong Kong-listed equivalent reference price and compared to the US$193.15 (a 31.25% premium) price investors are eligible to convert.
The Alibaba CB was sold under Reg S, an exemption to SEC requirements that is not dissimilar to the more typical 144A format. While less onerous from a compliance perspective, Reg S deals can only be sold to non-US investors (See Asia copy for further details).
Express yourself
Alnylam, a developer of RNA interference (RNAi) drugs that regulate gene expression, late on Tuesday raised an upsized US$575m from the sale of a three-year CB at a zero-percent coupon, spending some of the proceeds on a capped and buying back a portion of an existing 1% CB that is deeply in the money.
Goldman Sachs, Bank of America, JP Morgan and Wells Fargo increased the base deal size from US$500m ahead of pricing at 0% coupon and 40% conversion premium, through the aggressive ends of 0%–0.5% and 32.5%–37.5% terms marketed for one day.
Alnylam shares surged 6% on Tuesday to US$482.13, reflecting short covering by arbs on the repurchased 1% CB that is convertible at US$286.20.
The upper strike on the capped call was struck at US$837.61, a 75% premium to US$482.13 reference price and the US$670.11 investors are eligible to convert at. Factoring in the US$30.7m spent to purchase the capped call, Alnylam is effectively paying about 1.8% annually on the new CB, according to IFR calculations.
Buoyed by the prospects for its recently approved hemophilia inhibitor, Alnylam shares have more than doubled in 2025 to give it a market capitalisation of US$61bn.
After having just repaid an existing CB at maturity, Israeli web development software provider Wix.com on Monday raised an upsized US$1bn from the sale of a five-year, zero-percent coupon CB.
Typical of CBs by Israeli companies, Morgan Stanley and JP Morgan marketed a US$750m CB for one day at a fixed zero-percent coupon and 30%–35% conversion premium, ahead of upsizing to US$1bn priced at the 37.5% conversion premium.
Wix shares soared 9.1% over the one-day marketing period to US$167.04.
“Investors are learning about them and are excited about their prospects,” said a banker involved in the financing. “(The stock-price reaction) has nothing to do with the technicals of the deal.”
Wix repurchased US$75m worth of stock to allow arbs to pre-hedge some of their downside risk, but that was not sufficient borrow to fully hedge. The company spent US$62.5m on a capped call to offset dilution up to a share price of US$267.89, a 75% premium to reference.
In marketing the CB, the banks guided accounts towards a credit spread and implied vol of SOFR+200bp and low-40s to model the CB.
The zero-percent coupon allows foreign investors to avoid tax obligations under Israeli tax law.
Camtek, an Israeli maker of semiconductor equipment, on Thursday raised an upsized US$425m from five-year CB priced at a 0% coupon and 30% conversion premium, the aggressive ends of 0% and 30%–35% price talk.
Morgan Stanley and Goldman Sachs upsized the offering from the US$400m base deal size marketed.
Higher orbit
Astronics propelled to a new financing orbit by raising US$210m from the sale of a new CB it used to take out existing paper issued less than a year ago.
HSBC, TD Cowen and KeyBanc Capital Markets were joint bookrunners for the new 5.5-year CB at a fixed zero-percent coupon and 25% conversion premium. The banks also negotiated the repurchase of a portion of Astronics’ US$165m principal 5.5% CB that is convertible at US$22.89, with the company settling the purchase entirely in cash.
ICR Capital assisted as independent adviser.
The aerospace and defence contractor’s shares soared 14.7% over the one-day public marketing period Wednesday to US$43.90, as investors seemingly scrambled to cover short positions held on the existing deep in-the-money CB.
Importantly, the US$43.88 reference price on the new CB and the repurchase price of the existing bonds were set off a one-day VWAP over the public marketing period.
Astronics wall-crossed investors for two days to ensure sufficient holders were willing to sell the old and buy the new, with terms of both the new CB and the repurchase price of the existing agreed upon prior to the public launch.
“(Astronics) wanted to offset potential dilution (from the old CB) with a new more, debt-like security,” explained one banker involved in the refinancing.
In addition to wiping out dilution from the existing CB, Astronics purchased a capped call to offset dilution from the new CB up to a share price of US$87.79, a 100% premium.
Astronics paid a hefty price as the existing 5.5% CB it issued in October last year and which now trade above 200.