The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Why convertible bonds have been a smash hit in the US

A smash in the US, but tax advantages are not available for Europe.

Equity-linked: Convertibles’ Atlantic drift

Although convertibles have failed to inspire issuers in Europe, thanks partly to modest volatility and unfavourable accounting rules, the product has been a smash hit in the US, where companies have been embracing the instruments as a means to repurchase shares.

Annual volume rose in the US by 80% in 2006 to $71.3 billion, according to figures from Dealogic, and convertibles’ share of total ECM issuance rose to 33%, up from 23% in 2005. In the Emea region, by contrast, convertibles’ share of total ECM issuance fell to just 8%. Worldwide, convertibles accounted for 17% of total ECM volume.

“As many as two-thirds of the deals in the US last year had some repurchase angle to them,” says Brooks Harris, head of convertibles and equity-linked solutions at Deutsche Bank in New York. “The development of call spreads helped to make the product a much more tax-efficient structure for stock repurchases to the extent that convertibles became a favoured instrument for this use to a degree we’d never seen before.”

Call spreads are a private contract between the issuer and the underwriter, which effectively allows the issuer to get a higher conversion premium but without having to offer investors a high coupon.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree