Hedge Funds, Distressed Debt Buyers Bet on ‘Busted Converts’

The latest risk-on sentiment is leading some distressed debt buyers and hedge funds to bet on convertible bonds of companies whose shares have fallen far below the price at which the securities can be exchanged for stock.

These so-called busted converts offer big yields and the chance of huge profits if the stocks rebound, though they aren’t for the faint of heart. The convertibles of at-home fitness company Peloton Interactive Inc., a high-flyer during the pandemic, are attracting investor interest at 72 cents on the dollar and a stock trading at $13, nowhere near the conversion price of $239. ...