Shopping for convertibles

Mon Dec 15, 2008

They're on sale now, much to the chagrin of many seasoned convert players

By Irwin Speizer

#David Sackler hadn't planned on convertible bonds as a major part of his strategy at Moab Partners, a $100 million merger arb firm in New York. But opportunity knocked this fall after a trifecta of troubles hit convertible bonds: a surprise short-sale ban on financial stocks, steep margin calls, and redemptions. Bond prices collapsed under the strain, leaving major convertible players, including Citadel Investment Group, Whitebox Advisors, Highbridge Capital Management and Basso Capital, scrambling. Whitebox, Highbridge and Basso have all halted withdrawals, while Citadel began charging penalties for withdrawals when its 3% threshold was met.

As hedge funds and prime brokers began dumping convertibles, Sackler, who happened to be sitting on some extra cash, eagerly snapped up what he saw as bargains - securities priced to yield as much as 20%. Convertibles now make...

ISSN: 2151-1845 / CDC10004H

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