RE: Some Lawyer Got RichI know what you mean. Very confusing. This article below (from https://www.altenergystocks.com/archives/2011/08/new_flyer_an_offer_you_cant_refuse.html) says exercising the rights is the best thing to do -
New Flyer: An Offer You Can't Refuse
Tom Konrad CFA
A couple readers have asked me if they should accept the
NewFlyer (NFI-UN.TO/NFYIF.PK) Rights offering to exchange theirC$5.53 principal 14% subordinated notes for nine shares of New Flyercommon stock. The answer is most emphatically YES.
When I last
wroteabout New Flyer, I knew that they were planning to convertfrom their unusual stapled security structure to a more conventionalshare structure, but I was not certain how they could entice IDSholders to go along with the swap.
Now, it's clear. The New Flyer IDS is the combination of theC$5.53 note and one common share of New Flyer, and currently tradesfor C$7.66. The subordinated note is worth more than the facevalue because of the high interest rate, but is callable for C$5.80next year, and hence is worth no more than about C$6.40 (call priceplus interest) if not exchanged. That means New Flyer commonshares are currently worth at least C$7.66-C$6.40 = C$1.26.
The Tender offer gives you the right to exchange the IDS for 10common shares (one that you already own, 9 in exchange for thesubordinated note). This is worth at least C$12.26, 60% morethan the current IDS price.
When New Flyer issues all these new common shares in exchange forsubordinated notes, note holders who make the exchange will have aninstant gain, but the value of all shares will be diluted.Since only the company structure is being changed, not its netvalue, if everyone exchanges their notes for common shares, thewhole exchange will be a wash in terms of the value to IDSholders. But any IDS holder who chooses not to make theexchange will not participate in the gain, yet they will still bediluted by all the new shares issued, and hence will suffer a netloss. If some IDS holders choose not to exercise the Rights, thosewho do make the exchange will benefit at the expense of any IDSholders who do not exercise their Rights.
In other words, although this exchange is voluntary, any IDS holderwho chooses not to participate will suffer immediate dilution and anet loss in the value of their share large enough to more thanoffset any benefit from holding on to the high-interest subordinatednote until it is called.
If you're a New Flyer IDS holder, you've been made an offer youcan't refuse. Don't.
DISCLOSURE: Long NFYIF.
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