September issuance $3.04 billion in 12 deals, compared with August's $400 million: Barclays

By Rebecca Melvin

New York, Sept. 30 - The convertibles primary market in September, with 12 new deals totaling $3.04 billion, turned active again after a quiet August when only $400 million in two deals priced, according to Barclays Capital research.

New issues were priced attractively with an average cheapness of 3.6%, reversing the tightening trend since April, Barclays analysts Venu Krishna, Manoj Shivdasani and Peng Cheng wrote in their report Wednesday.

The average one-day trading return assuming delta hedged position was very strong at 9.16%, reflecting strong demand for new issues.

Deal size, which has been smaller, and a concern among market players who would like to see paper more broadly spread out in the market, is down year to date to an average deal size of $317 million from $632 million in 2008. But average deal size in September was larger at $254 million, compared to $201 million in August.

Issuers in September were all small market cap names.

Organic growth was negative at minus $1.66 billion for September and net organic growth for the year to date was negative at minus $21.3 billion, driven largely by financial preferred exchanges.

Annualized new issuance volume for 2009 was only $34.8 billion, which is 44% less than 2008 at this time, and 64% less than the 2007.

Non-rated deals dominated the primary market, accounting for 71% of the volume in September. Investment-grade issuance comprised 35% of total deal proceeds year to date, compared to 45% in 2008.

Weighted-average yields were 5.5% in September, while average premiums were 25.6%.

For the year to date, average new issue terms were 5.0% yield and 23.9% premium, compared with 6.1% yield and 27.8% premium for the same period in 2008.

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