Does conversion matters? the convertible debt rating analysis

For several decades convertible bonds have been a crucial element of the regulated capital market, while a large part of them have been traded outside the official market. In 2011 more than USD 100 billion’s worth of convertible bonds were issued worldwide, which accounts for about 10% of the value of all share issues and about 2% of the value of bond issues in regulated markets. Convertibles allow the investor to experience the benefits from both a fixed income and equity investment. This merger may determine lower interest on issued convertible bonds relatively to the straight debt. Nonetheless convertibles are rated just below the straight debt of the issuer. It may be that they are often offered by levered firms, which tend to be riskier, and those with high-growth, so related to future uncertainty. The main goal of the paper is to find the evidence of the convertible debt issuer characteristics. We focused on the rating of the companies. We compared similar convertible and non-convertible issuers. We also analyzed some examples of convertible and straight bond issued by the same company. We confirmed that convertible debt is lower rated than the non-convertible comparable one. The object of research was a group of 350 companies listed on the NYSE, NASDAQ and NYSE-MKT markets. Companies that had issues convertible and straight bonds in the 2007-2011 period were analysed. Calculations used data published on the Bloomberg website. In the second section we explained the most important differences  between those two securities issuers’ financial standing. The most popular debt and efficiency financial ratios were taken into consideration. We did common comparable statistic analysis. Panel regression was also used to deepen the research.