How do you entice a highly rated, well-respected and
conservative issuer to use a product they've never used
before? You offer them a whole new investor base willing to
buy a security that bags the issuer savings of 40 basis
points over Libor.
That's what Wells Fargo managed last month when it
issued its first convertible in at least 25 years.
For most of that stretch it was in good company. Convertibles
weren't used by investment-grade corporates. Bank loans and
corporate bonds offered better funding costs.
That all changed in 2000. New structures made convertibles more
attractive. And then the deteriorating economy gave the nascent
high-grade converts market a shove by limiting access to commercial
paper. High-grade companies could issue a convert structured in
such a way that they would pay neither coupon nor yield - zero-zero
convertibles - while at the same time having high conversion
premiums that at times went beyond 40%. It was...
