Dryships (DRYS) Convertible & Company Summary

The DryShips 5% convertible bond of December 2014 would appear at first glance to be trading as a cash substitute, quoted just below par. But a 5% coupon these days is no cash substitute. Indeed, depending on the quote and where in the bid/ask spread the bond trades, the yield can vary enough to make extrapolating difficult—especially because yield is such a potentially overrated calculation on a very short instrument with considerable credit risk.

What's the right way to think about the bond? Well, given the looming maturity and the company's challenged liquidity, it makes sense to think in terms of an exchange offer. Although the new-issue calendar has picked up of late, the convert market still has a lot more cash than it can put to work, especially in balanced paper.

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