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After a frantic summer and fall, John Fore’s convertible debt practice is ending the year much as it began — on a quiet note. But that could change come January. Technology companies are lining up to raise money in the public markets after the holidays, and Fore, a Wilson Sonsini Goodrich & Rosati partner, has his fingers crossed the market for convertible debt deals will heat up as it did earlier this year. “We saw a lot of deals get done, and we see a reasonable number of deals wanting to get done in January,” Fore said. “Whether the demand is still there, I don’t know.” The usual factors that create a favorable market for convertible debt offerings — low interest rates, stock market stability and pent-up investor demand — are all present, lawyers said. That contributed to a healthy deal pace this year among Silicon Valley lawyers who specialize in the transactions. Fore’s group, for example, did 26 convertible debt deals this year — the closest his group has come in five years to reaching its 1998 peak of 32 deals. More than half of Fore’s crop of deals closed in a rush in late summer and early autumn. After a slow first quarter with just three deals, Fore’s practice went on to rack up 12 deals in the second quarter alone, with most of them closing in May and June, he said. He’s closed just five deals since October, but he has a handful lined up to try an offering early next year. With a convertible debt offering, companies essentially borrow money and pledge to repay the loan or convert it to stock after some time period, typically five years. Companies typically use the capital for operating expenses or acquisitions. But in the past year, Fore said companies are expanding their uses for the money to include buying back their own stock because they think it’s trading too cheaply. “It’s a big and important area for technology companies trying to raise large amounts of capital,” Fore said. “Technology companies learn to dislike debt because generally debt means you become subjective to restrictive covenants.” Other Silicon Valley lawyers with convertible debt practices say they also have clients clamoring to hit the market next month. “It suggests we have much better visibility going into ’04 than we did going into ’03,” William Kelly, a Davis Polk & Wardwell partner, said. Kelly said his firm’s Menlo Park outpost saw a jump in deal activity in the past year and closed more than two dozen deals. Like Fore, the Davis Polk group has a handful of clients still hoping to raise money in the coming months. “The deal flow [and] the prospects for deals getting done are better,” Kelly said. “It’s a more optimistic time than it was a year ago.” If investor appetite for straight debt deals is any indication of what’s to come, Valley lawyers can prepare for a busy first quarter. Tracy Edmonson, a Latham & Watkins partner who specializes in debt offerings, said the market for debt deals is “white hot” and an expected January pop may whet investor appetite for other kinds of deals. “The investment bankers see a market window opening in January, and they are cramming the pipeline to take advantage of that window,” Edmonson said. “You can sell all kinds of product in a hot debt market.”

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