Talking Convertible Bonds With Two Billionaires From That Other School - Forbes

Talking Convertible Bonds With Two Billionaires From That Other School - Forbes:



"Why is it such a good time? Two reasons: high stock prices and low interest rates. That’s all. These two factors, put together, mean that prospective issuers have the opposite of a Hobson’s choice. They can raise a lot of money at a trivial, or zero, interest rate. If their stocks don’t rise significantly, they will have borrowed the money for, say, five years, essentially for free. And if their stocks do rise significantly, well, would it really such a bad thing for Facebook to sell $10 billion worth of stock at $100 per share, having sold shares at $38 in 2012? Would it really be so awful for Netflix to sell stock at, say, $650 per share, having sold shares at $70 in 2011?"

Which brings me back to Ken Griffin.  It’s largely because of him that these deals are there for the taking.  A lot of people who never heard of Ken Griffin before this week know his name now because of his contribution to his alma mater. I still can’t bring myself to say its name.  Back in the late 1980’s, Ken created convertible-bond lore by trading the bonds from his dorm room.  He figured out that convertibles were frequently worth substantially more than their market price. Back then, convertibles were seen as little more than stock substitutes with bigger income streams.  Most of the analysis used to value them was incredibly rudimentary.

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