39-40..
Today's WSJ carried a good article on Ford's new debt raising..and discusses convert-arb strategy.
One reason for the recent drop in the share price is Ford's issuance earlier this month of $4.5 billion in unsecured bonds that can be converted into its shares, part of the $23 billion in debt issued. The offering was snapped up mainly by "convertible-arbitrage" investors who sold Ford shares to hedge their exposure to movements in the stock price, according to people familiar with the deal.
Convertible-arbitrage allows investors to profit from movements of convertible bonds against other securities. It often involves trades using credit-default swaps, which are derivative contracts that protect buyers in the case of a bond default. Investors also can hedge against a decline in the price of a convertible's underlying shares, as in the latest Ford case, by selling shares in the open market. The more movement there is in the issuer's securities, the more opportunity to trade.
One reason for the recent drop in the share price is Ford's issuance earlier this month of $4.5 billion in unsecured bonds that can be converted into its shares, part of the $23 billion in debt issued. The offering was snapped up mainly by "convertible-arbitrage" investors who sold Ford shares to hedge their exposure to movements in the stock price, according to people familiar with the deal.
Convertible-arbitrage allows investors to profit from movements of convertible bonds against other securities. It often involves trades using credit-default swaps, which are derivative contracts that protect buyers in the case of a bond default. Investors also can hedge against a decline in the price of a convertible's underlying shares, as in the latest Ford case, by selling shares in the open market. The more movement there is in the issuer's securities, the more opportunity to trade.
posted by Quantjock at 6:55 AM
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