Leaders of Today, Leaders of Tomorrow: Convertible Opportunity in Focus

Leaders of Today, Leaders of Tomorrow: Convertible Opportunity in Focus

Alphabet’s proposed $15 billion mandatory convertible issue demonstrates that the convertible market remains a top choice for the most innovative companies. Large-cap companies like Alphabet and Oracle (which issued $5 billion in mandatory preferred convertibles earlier this year) could add energy to an already exciting market. These mega-cap issuers are a dynamic complement to the small and mid-cap “leaders of tomorrow” that are well represented in the convertible market. Convertibles are especially compelling for growth investors because, in many cases, their structural features offer built-in risk management. Active management is essential for harnessing the opportunity of the asset class; our nearly 50 years of experience gives us a valuable edge. Convertible securities are hybrid securities that blend the characteristics of stocks and fixed-income securities to meet the needs of issuers and investors alike. Over more than 150 years, the convertible market has evolved and adapted; today’s market includes a range of structures, including traditional convertible bonds, convertible preferreds, and less familiar structures, like convertibles with mandatory conversion features. Whereas a traditional convertible bond provides the holder with the option but not the obligation to convert the bond into a specific number of shares of the underlying common stock at a pre-determined price, a mandatory convertible requires conversion to equity at a set date, typically three years after issuance. Mandatory convertibles typically provide more income than the common stock in exchange for giving up the bond floor and the downside risk mitigation that a traditional convertible bond provides. At Calamos, we believe that convertible securities provide a wealth of strategic asset allocation opportunities. As both students and investors of the asset class, we’re tremendously excited to see dynamic issuance trends energizing the market. This includes bellwether mega-cap tech leaders choosing convertibles to fund their plans for AI expansion. Growth capital for growth companies. Historically, the convertible market has been home to many of the most innovative companies, and we certainly see that today. The convertible market offers a breadth of ways to participate in secular trends, such as the AI buildout. Many of the names in the convertible market may not be familiar—today—but the market has a long history of being home to the leaders of tomorrow.

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