Why You Should Use an Advisor for Your Convertible Debt Offering (original) (raw)

By ICR

In continued economic uncertainty, businesses are increasingly seeking trusted advisors to help them navigate complex deals. Specifically, amid high interest rates, companies that want to reduce their interest burden may consider a convertible debt offering. This process differs significantly from pursuing an IPO or other traditional financing alternatives, so many companies seek the guidance of trusted advisors to move forward with this option.

This year, Raj Imteaz, Head of ICR Capital’s Convertible and Equity Derivatives Advisory Team, has seen clients hire advisors in three out of four deals that involve issuing convertibles. He recently appeared on ICR’s podcast, Welcome to the Arena, to discuss why advisors can be valuable additions to a deal-making team and what to look for in an advisor.

Benefits Now and Into the Future

Convertible advisors are relatively new, explains Imteaz. “When I joined Wall Street 20 years ago, there was no such thing as a convertible advisor,” he says. Now, however, advisors make such a significant difference in simplifying the process that he has seen clients hire advisors in 70% of deals.

“We take care of accounting. We work with the general counsel and law firms to bulletproof the documentation. We work with the client to make sure the banks are truly giving clients the absolute best structure. And we stay with the clients over the life of the security to address any questions,” he explains.

That work can help the client save time and money, sometimes shortening the time to launch the offering from two weeks to four or five days. In regard to financial savings, a good advisor can help a client save between 20and20 and 20and50 million on a billion-dollar deal. And that’s just the beginning of the benefits. “There are many buckets of value to capture,” Imteaz says. “Think about the derivative hedge, the call spread structure.” He goes on to explain that when advisors are involved, the call spread generally prices better. And, stronger documentation in favor of the client can help prevent the company from paying out tens of millions of dollars in response to various corporate events, he says.

“Once you add all these things together — not to mention time savings; our clients are very busy people, and we save them hundreds of hours of time — it adds up to a very big number,” says Imteaz.

Knowing the benefits, potential clients might expect a high advisory fee — but Imteaz explains that that’s not the case. “Your bank fee doesn’t really change whether you have an advisor or not,” he says. “If you do hire an advisor, a small piece of the deal fee goes to [them].”

What to Look for in an Advisor for Your Convertible Debt Offering

According to Imteaz, any advisor is helpful to a convertible transaction. “I tell clients that advisory is like pizza; even last night’s pizza is good pizza,” he says, explaining that all advisors do a good job keeping everyone focused and helping clients get a better deal. “But if you’re going to have a pizza, might as well get the best.”

And the best, he says, comes down to the following traits that differentiate a great advisor from a good one:

• Multidisciplinary team: A varied advisory team that includes professionals in several different roles (e.g., accountant, attorney, etc.) can handle a range of challenges that clients face during a complex transaction.
• Holistic mindset: A team that thinks holistically about a transaction can make sure that other elements of the deal strategy (e.g., investor relations, corporate communications) are aligned and support the overall goals of the company.
• Focused on advisory: Imteaz explains that many advisory firms have, in recent years, moved away from a pure advisory model, aiming to instead replace the banks and do the deal themselves. “In my view, that means you are a bank, not an advisor,” he says. “If you’re going to hire an advisor, go hire a real advisor. And if you’re going to hire a bank, go hire a real bank.”

Hiring a convertible advisory team is more than an option; it’s a strategic move that can result in significant financial and time savings. For more insight into the convertible debt market, download our checklist, “7 Things to Know Before Executing a Convertible Debt Offering.”