NEW YORK, March 25 (Reuters) - Lehman Brothers Inc. said on Tuesday it has begun several indexes to track the performance of the stock-bond hybrids known as convertible securities.
Lehman's composite index consists of about 650 securities with a $227 billion market value. To be included, a convertible must be U.S. dollar-denominated, have at least $50 million outstanding, must have at least 31 days until maturity and not have been called or in default.
Venu Krishna, Lehman's head of U.S. convertible research, said in a statement that creation of the index is timely "given the convertible market's rapid growth, its increasing integration with the fixed-income and equity markets and the diversity and breadth of its investor base."
Hedge funds, convertible bond mutual funds and equity income mutual funds are among the larger convertible buyers. The securities usually throw off interest payments, like regular bonds, but can be converted into company stock.
Tyco International Ltd. sold $4.5 billion of convertibles in January in this year's largest U.S. convertible sale and the second largest ever. The biggest is Ford Motor Co.'s $5 billion sale in Jan. 2002.
Some convertibles function like regular interest-bearing bonds. In contrast, some generate no interest at all, while others are automatically convertible into stock on a pre-set date and still others take the form of preferred stock.
Users of Lehman's indexes will be able to sort convertibles by security type, size, sector, credit quality, yield, issuer market capitalization and "profile." The latter highlight which convertibles are equity-sensitive, and which have fallen so much in value that they have become "busted" or "distressed."
Companies have sold about $15.1 billion of convertibles in 31 transactions so far this year, Morgan Stanley's ConvertBond.com said, compared with $54.6 billion in 121 transactions for the whole of last year. They sold a record $105.7 billion in 2001.