The Financing of Last Resort

In 2002, we used to comment at the office that unless a company was dead, it could always get financing through a convertible bond offering.  The more volatile the situation (up to a point), the more the conversion option is worth, which can significantly reduce the effect of higher credit spreads, at a cost of possible dilution.

So, with the difficulties in getting financing at present, is it any surprise that we are having record issuance of convertible bonds?  I expect to see more of it, particularly for areas involved with housing, commerical real estate, mortgage finance, financial guarantee, and the investment banks.  High volatility and a need for financing begets convertible bond issuance.  That’s where we are now.