A tailwind for convertible bonds

LAST month, artificial intelligence server maker Super Micro Computer achieved something not seen since 2021: It paid a zero per cent interest rate on a $1.7 billion capital raise. Its secret: it issued a bond that can convert to shares. The offering shows how the market for such convertible bonds is getting a second wind as investors adjust to the idea that the Federal Reserve will keep rates higher than they expected this year and a benign growth environment drives up stocks. Recently, eight US companies, including Global Payments, NextEra Energy, Lyft and Sunrun, have raised nearly $7bn through convertible bonds, making it the busiest period for the hybrid securities in over two years. To make convertibles more attractive to companies, banks are selling insurance and other services to reduce the risk of giving away shares at a discount to the market price. While the services add to the costs of issuance, the savings on interest are higher. Companies can save on average 3pc to 4pc in interest costs, according to an investor and an analyst said.