Marathon's Convertible Bond Arbitrage team focuses on its proprietary convertible bond investment approach. Convertible bonds have three main elements of risk: movements in equity price, interest rate exposure and credit risk. Marathon addresses these three respective risks by evaluating and hedging: 1) common stocks, 2) cash, futures, interest rate swaps and 3) asset swaps, credit default swaps and associated corporate bonds, respectively.

Marathon's Convertible Bond Arbitrage investment team utilizes various strategies in an attempt to:

• Take advantage of the gamma inherent in convertible bonds and actively delta hedge to attempt to capture the “net long” or “net short” from the volatility of the stock;
• Participate in new issue convertibles to purchase theoretically undervalued securities;
• Capitalize from anticipated changes in the spread of bonds caused by changes in the underlying credit and credit spreads;
• Buy low premium puts as a means of capturing yield and/or cheap out-of-the-money put options embedded in the convertible;
• Buy low delta convertibles with inexpensive out-of-the-money call options embedded in the convertible bond that have the potential for a large gain in the event that the underlying stock rallies;
• Capture leveraged cash flow from the differential between the coupon on the convertible bond plus the stock loan rebate received on common shares sold short versus the dividend on convertible sold short plus the cost to finance the convertible bond; and
• Participate in special situations such as capital structure arbitrage, privately placed convertible bonds and corporate buy-backs.

In addition to intensive internal credit research and due diligence, strategic relationships have been cultivated over many years with key market participants, in the U.S., Europe and Asia, creating an optimal channel for information flow and alliances. These relationships include the sales and trading teams of nearly twenty investment banks and significantly more companies who issue debt thus enabling Marathon's Convertible Bond Arbitrage business to participate in a full range of new issues, special situations and overall investment opportunities.