Tim,
I heard an estimate that Allison exacted 4 billion in damages in Texas alone.... the totals for the storm may
get up to 6 or 7 billion..... wow.
CORV has been heavy, heavy. I think they had 180 million shares that were unlocked in Late Jan or Feb.
that's a lot.
While we all know the market corrects to extremes the telco capacity and telco debt issue still has room to play. Companies with debt and no earnings (or positive cash flow to service the debt) are
in trouble and even companies like corv will see balance sheets crumble.
Its happening all around, not just in tech. A year and a half ago demand was so high companies could sell and the purchasing area would just ask when it could be delivered. Now the purchasing area
is saying the price is too high and they'll either buy from another or wait for the price to come down. Its getting brutal.
you are so right. There was so much speculation and the concommitant overinvestment in technology that it's
scary to see how many more bankruptcies will occur and redundancies which will need to be reduced to bring
constructive cash flow fundamentals back to the sectors.
biz.yahoo.com
look at this massive issuance of convertible bonds, the purchasers of them can short the common stock and
have a free ride while collecting yield as they are protected if the stock goes up.... and if the common stock goes
down, they are a senior obligation. I think this shows the systemic weakness in the capital market
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Friday June 1, 9:41 am Eastern Time
WORLD BONDS-Convertible bonds smash record in May
By Jonathan Stempel
NEW YORK, June 1 (Reuters) - Companies in search of cheap financing sold more convertible securities than ever in May.
And so long as the stock market doesn't fall off a cliff, rapid issuance should continue, analysts said. This, even though most investors still have no idea what the stock-bond hybrids are or how to use them.
``It has been incredibly busy on the new issue front because companies perceive they are getting a good deal,'' said Sandra Durn, who runs the PIMCO Convertible Fund from New York. ``It's fast, relatively inexpensive financing, and the investment banks are competing dramatically for their business.''
Convertible securities, which are a $180 billion market, usually pay interest and can be converted into company stock.
In May, 40 companies sold $20.5 billion of convertibles, according to ConvertBond.com, a division of Morgan Stanley. That smashed by 72 percent February's $11.9 billion monthly record.
For the year, companies have sold $49.7 billion of the securities, ConvertBond.com said, and are about 80 percent of the way to last year's record. In comparison, they have sold a mere $41.3 billion of junk bonds, according to Thomson Financial Securities Data -- in a market four times larger.
CHEAP FINANCING
The conversion feature allows companies to pay out lower interest rates than on ordinary bonds. Some convertibles also have tax advantages for the issuers.
In May, U.S. stocks rose, and that made it less costly for many companies to sell convertibles and risk giving up equity.
``Issuance is directly correlated to the advance of stock prices, not so much to a company's funding needs,'' said Adrian Miller, a vice president of convertible research at Salomon Smith Barney.
Yet stocks are still down for the year.
As a result, there haven't been big profits in convertibles as a whole. That's to be expected because convertibles often move with stocks, though they rise and fall less.
So far this year, convertible bond mutual funds have fallen 2.85 percent, including interest, according to Morningstar Inc. In contrast, the Standard & Poor's 500 stock index has fallen 4.52 percent, including dividends.
To be sure, pockets of the market are performing well.
``Busted'' convertibles, which act like bonds because the stocks have fallen so far and the chance to convert is remote, now comprise more than one-third of the market, analysts said.
And, according to Durn, ``perhaps half of the companies in the busted category are strong, growing companies, which differs from how it has been in the past.''
Still, despite the downside protection convertibles can offer, few ordinary investors touch them. Indeed, hedge funds have been doing most of the recent buying, and professionals always urge ordinary investors to stick to mutual funds.
``Convertibles are an esoteric asset class, and it's harder for individuals to comprehend their esoteric aspects,'' said Ravi Malik, who helps invest $3 billion of convertibles for Froley Revy Investment Co. in Los Angeles.
How esoteric? Some, known as zero-coupon bonds, pay no interest. On others, the interest rate changes. Some convertibles are convertible when the stock reaches a target price, and others only when the stock trades above that price. And they don't always move in sync with the underlying stocks.
DIVERSITY, AND OVERSUPPLY
Leading the issuance parade in May was a unit of phone giant Verizon Communications Inc. (NYSE:VZ - news), which sold $3 billion worth. Merrill Lynch & Co. (NYSE:MER - news) sold another $2 billion.
A wide swath of companies sold convertibles in May. Salomon said 35.7 percent of new securities came from communications equipment and services companies such as Verizon. Finance accounted for 19.3 percent, followed by consumer cyclical, health care, utilities and energy companies, it said.
``The nice thing about the convertible product is that so long as one kind of security doesn't dominate, you can migrate within the market,'' said Malik.
Oversupply, though, could lead the market to soon cool.
Zero-coupon bonds comprise a majority of new issues, and many investors don't like them.
``They are not very equity sensitive, and are turning our universe into a more fixed income-like universe,'' said Durn. ``It's contrary to the way this asset class has been marketed in the past, as an equity surrogate. It's not a trend I would personally like to see continue.''
Also, investor appetite for riskier bonds may be sated.
Last week, two ``junk'' rated telecom and tech companies, EchoStar Communications Corp. (NasdaqNM:DISH - news) and Nextel Communications Inc. (NasdaqNM:NXTL - news) each sold $1 billion of bonds. Those bonds have since fallen as much as eight cents on the dollar.
``The type of structure that will dominate any given period of time will be dictated by how much the market tolerates before it says 'Stop!''' said Miller.
On the other hand, the investment banks that help companies sell convertibles have good reason to keep issuance high.
Their fees from underwriting stock have slumped. As a result, the average 2.1 percent fee that Thomson said convertibles generate now looks lush, compared to the 0.5 percent and less on investment-grade bonds, analysts said.
And the more convertibles a bank helps sell, the higher its ranking on the hotly contested ``league tables,'' even if ends up holding on to many of the convertibles itself.
``It's all about league table ranking and fees,'' said Durn. ``If (banks are) willing to put as much as 70 percent of the issues on their books, as they have sometimes done, then more sales like these can be done.'' |
