Convertible notes ride again.

Companies are rediscovering the convertible note, as equity fundraising dries up.

January 16, 2023

The World Economic Forum Annual Meeting begins today. I regret to inform you that my employer has decided not to send me to Davos to cover the event. In the current economic climate, we are all having to make sacrifices and so it is understandable. But don’t worry, we will cover it from afar — I just hope the store will allow me to return my new skis.

The lowdown

Flex your finance muscle

Credit: HBO’s Succession.

World Economic Forum

The private jets (PJs if you are a Succession fan) have begun landing in Switzerland, as the global business elite meet for the World Economic Forum (WEF) Annual Meeting – also known as Davos. You have almost certainly heard of the event, but you might be wondering what exactly the WEF is.

The WEF is a non-profit organization with a mission to improve the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas. The organization also conducts research and provides a platform for global dialogue on important public policy issues.

It is best known for Davos – the meeting that brings together some of the world's wealthiest and most influential people to discuss pressing global issues and share ideas for improving the state of the world, (allegedly).

You can find the 2023 agenda here.

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Credit: Peloton.

Convertible notes come back into favor

Companies are rediscovering the convertible note, as equity fundraising dries up. Measured by deal count, December was the busiest month of 2022 for convertible notes ($).

This comes after a difficult period for convertible bonds, in which high valuations and low interest rates allowed some companies to raise debt at low or zero rates and with a conversion price near all-time highs.

One such company was Peloton. The stationary bike company raised $1 billion of debt through a five-year note that pays no coupon and is convertible at $239, which represented a 65% premium to where the stock was trading at the time.

Quite an astute piece of financing from the company, given the stock is now trading at $11.63 and it may go into liquidation. Paying no coupon is one thing but there is a strong possibility this note will be paying no principal.

The content we're consuming today

Off-balance sheet items

  • Gamecraft is a new podcast about the history of the video game business, hosted by game industry legend Mitch Lasky and Benchmark Capital’s Blake Robbins. The first two episodes are out now.

The bottom line