Convertible new issuance volume for April lackluster, but pricing attractive: Barclays Capital

By Rebecca Melvin

New York, April 30 - With seven deals totaling $2.6 billion, convertible bond new issuance for April was below average and down 47% from March's $4.8 billion, according to Barclays Capital's April new issue trends report.

But while volume was lackluster, pricing was attractive, Barclays analysts Venu Krishna, Manoj Shivdasani and Peng Cheng wrote.

Annualized volume at $29 billion is the second lowest since 2002, Barclays said. This is likely understated given an abnormally weak January and February for new issuance, followed by a pickup in March and April.

Barclays Capital new issue volume total for April was below Prospect News' $4.02 billion new issue total, because Barclays didn't include Popular Inc.'s $1.15 billion common equivalent securities, priced April 13, or DryShips Inc.'s $260 million add-on, also priced in April.

Pricing attractive

New issue pricing was attractive with an average cheapness of 6.29%, not including MGIC Investment Corp.'s issue, in contrast to the tight pricing in March, during which cheapness was 1.85%. One-day average delta hedged return was 2.34%, the highest since September 2009.

Organic growth was positive at $1.38 billion for the second month, bringing year-to-date organic growth to $2.1 billion.

Investment-grade issues were absent in April. In all, 75% of the new issues were rated high yield. In contrast, 68% of new issues were non-rated for the year to date.

Mid-cap issuers made up 53% of April's volume, with the rest going to small-cap issuers. For the year to date, small-cap issuers made up 41% of the new issue market share.

The weighted-average yield was 5.2% in April, the third highest in the last 12 months. On the other hand, the average premium was 28.5%, the highest in the last 12 months.

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