2001 Other markets may be in a lull, but convertible bonds are percolating. That's good news for bankers - and for companies seeking capital. Not from the usual places.
Convertible bonds combine features of bonds and stock options.
Like other bonds, convertibles pay investors interest. But they also provide an option to exchange the bonds for stock at a set price. The idea is to let investors benefit when the stock goes up, while softening the blow if the stock sells off. So when the stock goes up, convertible buyers make money, though less than common stock investors do. Scott Lange, director of U.S. convertible research at Goldman Sachs, estimates that, over time, convertibles provide investors 70 percent of the upside in rising markets, but only 50 percent of the downside when stock prices are falling.