Articles
January 21, 2026
White Water Rafting in the Convertible Market, Buoyed by a Guide
# Capital Markets
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Amid a surge in convertible issues, advisors can help corporates manage complexities and minimize equity dilution.
Convertible bonds, long associated with high-growth and technology companies in search of lower borrowing costs by offering investors potential future equity upside, are attracting interest from a broad range of corporates. Issuance accelerated through 2025 as companies weighed convertibles against volatile equity markets and comparatively lower convertible coupons relative to straight debt, ending the year with a record $120 billion of U.S. issuance, according ICR Capital’s 2025 Equity Capital Markets Review. Activity extended into typically non-traditional sectors including industrials, energy and real estate, despite the potential for dilution.
- A convertible combines features of debt and equity: it pays interest and must be repaid at maturity, and gives investors the option to convert into shares if the stock price reaches a certain premium over the current price.
- To take advantage of convertibles, treasury teams must prepare for what can be complex transactions. A recent NeuGroup session sponsored by ICR explored the challenges and how an advisor can help navigate the process, with Kristina Woodhouse, Managing Director and co-lead of ICR’s Convertibles, Equity Derivative and Share Buyback advisory team, joined by treasurers from two companies advised by the firm on recent convertible deals.
- The discussion focused on how treasury teams manage decisions around structure, timing, settlement and investor communications, as well as the mechanics of call spreads that can delay or reduce dilution.
- “Executing a convertible today can feel like white water rafting,” Ms. Woodhouse said. “And when you add a call spread, it’s like someone throwing a feral cat into the raft,” she added, drawing laughter. “You can do it yourself, but you probably don’t want to.”
Where advisors add value. The execution burden for convertibles has grown as more companies layer in choices around size, tenor and settlement, alongside derivative overlays, often on compressed timelines. “You may get a question from the board and suddenly need to evaluate several paths at the same time,” Ms. Woodhouse said. “That’s where preparation really matters.”
- As an independent advisor, ICR helps treasury teams map out execution paths in advance and narrow the range of decisions that must be made under time pressure. Issuers face a dense set of choices during a convertible—covering deal size, settlement, allocations, syndicate structure and call spreads—often while banks are serving multiple roles across the transaction. ICR said that dynamic makes advance modeling and coordination across treasury, legal, accounting and investor relations teams critical.
- Members with recent issuance experience said that this approach helped keep transactions manageable as timelines tightened. One of the presenting treasurers said having a single point of coordination mattered once execution was underway. “Kristina was our go-to for everything,” he said, citing support on legal questions, valuation, settlement mechanics and last-minute investor materials. “She was always there, even at 11 o’clock at night.”
- One NeuGroup member attending added, “We did two convertible deals: one without an advisor, and one with ICR. We got much better execution on the second. You also get better insights than banks because of their independence and experience.”
Kristina Woodhouse, ICR
Why convertibles, why now? Although convertibles add complexity, they also offer companies a less restrictive form of financing. One treasurer at a healthcare company said their team evaluated a straight debt deal but found challenges with timing constraints. “We could look at the traditional debt market,” the treasurer said, “but we weren’t rated and we didn’t have time.”
- Maturities of three to five years can make sense when companies view convertibles as a bridge rather than permanent capital, Ms. Woodhouse said. She added that many issuers return to the convertible market multiple times before pursuing credit ratings necessary for longer-term financing.
- Some participants said they considered term loans or similar structures but were wary of maintenance covenants that require companies to meet ongoing financial tests. “A lot of folks highlight that lack of covenants,” Ms. Woodhouse said. “That’s a big selling point.”
A solution for dilution. Borrowing at lower coupons and with essentially no covenants comes at the cost of potential equity dilution. Decisions around deal size, maturity and how conversions are settled determine when and how that dilution might ultimately occur.
- Call spreads, including capped calls, are used to effectively raise the conversion price of a convertible by purchasing call options at the bond’s conversion price and selling call options at a higher price—a strategy that ICR says typically saves 150 basis points. The structure can protect against dilution up to a defined level, giving companies more control over when equity dilution may occur if the stock performs well.
- “Roughly half of issuers now pair convertibles with a call spread, and this number increases when we select more growth-oriented companies,” Ms. Woodhouse said. Among the complexities: banks underwriting the bond are often also counterparties on the derivative, and their hedging activity can influence market dynamics. “There are a lot of moving parts.”
- One of the treasurers described managing the overlay alongside the convertible as particularly demanding. “You’re buying a call and selling a call, and the net cost is coming out of pocket day 1,” he said. “Managing that process at the same time as the convertible is not trivial.”
- ICR helps issuers think through call spread economics in advance, model different outcomes and run disciplined bid processes so fewer decisions are left to the moment of execution. “Our job is to take that off your plate so you can stay focused on the bigger picture,” Ms. Woodhouse said.
- Another way to mitigate dilution is by electing net share settlement, when a company commits to always repay the bond’s principal in cash and, upon conversion, issues shares only for the value above the conversion price. That limits dilution to gains beyond a defined threshold, but it requires planning for the cash payment. “The number one thing we looked at initially was net share settlement,” one treasurer said. “From a treasury perspective, a convertible with a 100% capped call and net share settlement makes the most sense.”
Peace of mind. While there’s no doubt that corporate treasury teams can rely on the investment bankers underwriting convertible securities to guide them through the process, a growing number of companies clearly see the value of enlisting advisors like ICR. Some of the benefits are quantifiable—potentially lower coupons, higher conversion premiums and better derivative pricing. And some of it is simple comfort and peace of mind.
- “Can you do it yourself?” Ms. Woodhouse asked. “Yes. But then what happens, and what might you miss?”
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