Capital securities markets have grown over the last several years as corporations have diversified their funding sources beyond traditional asset classes. This trend has accelerated recently, particularly in the convertible bond, mandatory convertible preferred, and junior subordinated debt markets.
We believe this broadening of capital markets expands the toolkit available for investors and issuers alike as both parties can opt for the piece of the capital structure best fit for their purpose. Investors can determine whether they prefer more bond-like or equity-like exposure to a certain issuer. Issuers can decide how a given structure optimizes for specific needs, such as lowering interest expense, improving capital ratios, or minimizing dilution (Figure 2).