US CBs head to all-time record issuance in 2025
The US convertible bond new issue market is tilting toward a record level of issuance for the year. Last week saw nine companies raise a combined US$6.9bn from the sale of new CBs, taking year-to-date issuance to US$84.8bn, already eclipsing the US$71.8bn raised in all of 2024 and approaching the all-time high of US$99.5bn back in 2001, according to LSEG data.
Stocks are trading at all-time highs, interest rates are still high by recent historical standards, and companies are monetising volatility to lock in favourable economics.
“We expect issuance to remain active through the end of the year,” the global head of equity-linked origination at one US bank told IFR.
Voyager Technologies, a space explorer, punched through a US$435m five-year CB priced at a 0.75% coupon and 30% conversion premium just five months after going public. Supported by a concurrent share repurchase and prepaid forward, the CB featured a capped spread overlay to offset dilution up to a 150% premium to the reference price.
Net the costs of the capped call derivative, the all-in cost works out to roughly 3.25%.
The capped call derivative product has benefitted from a growing number of banks competing to serve as counterparty, allowing companies to reduce money spent, bankers say.
In addition to such opportunistic financings, companies are turning to the CB market to refinance legacy debt, frequently existing CBs but also as an alternative to straight debt.
Serial CB issuer Halozyme Therapeutics raised US$1.3bn from a two-part sale of CBs to repurchase portions of CBs maturing in 2027 and 2028, taking out investors entirely in cash to flush stock dilution and purchasing a capped call to offset dilution up to double the reference share price.
CMS Energy, an investment-grade rated utility, returned to the convert market with an US$850m 5.5-year CB it is using to prefund the maturity of straight debt later this year at a lower cost.
BWX Technologies, a provider of nuclear power technologies, and rare-earth mineral miner Ramaco Resources highlighted the breadth of long-tailed investment opportunities by making their CB market debuts this week.
While the bulk of funding has been souped-up plain-vanilla CBs, companies are beginning to issue mandatory convertible securities to provide ballast to credit rating concerns and as a potential harbinger of M&A.
Novanta, a maker of lasers for healthcare and industrial applications, on Thursday raised US$550m from the sale of a three-year mandatory priced at a 6.5% dividend and 25% conversion premium. The company used that money to pay down borrowings on its revolving credit facility but also cited “strategic flexibility” and “potential future acquisitions” in issuing the ratings-friendly security.