ARTICLE | Finance

Preaching to the converted

June 16, 2003 7:00 AM UTC

Debt and biotech have always had an oil and water feel, given that most companies don't have the cash flow to meet the interest payments. But that hasn't kept investors from throwing money at companies in exchange for IOUs over the years. Now the convert market has hotted up again, with $1.2 billion of debt pricing last week, bringing to $1.7 billion the amount raised in the last three-and-a-half weeks.

This time around, what's different is that the terms to the biotech companies are outlandishly cheap. The attractive terms are being driven by the low interest rate environment and volatility of the sector - convert investors like volatility because price swings in the underlying common stock mean the prices of the bonds in the aftermarket can move up and down, offering a chance to trade for a profit. As a result, companies are getting away with low interest rates and big conversion premiums. ...