RE:RE:RE:RE:Debenture saleporksniffer wrote: ufoolme wrote: You will have to explain to me how you can buy debentures paying 5% interest and then short the stock at around the current price of let’s say 16.25 risk free. The conversion price is $24, so they can’t cover the short with the converted shares unless the stock goes over 24. If it stays between 16.25 and 24 they lose whatever the difference is less the 5% interest they collect. If it goes over 24, they have lost 7.75 per share, the difference between the short price and the conversion price.
They only make money if the shares fall below the short price. So the only difference is they get the interest on the debenture as long as they hold it. That’s hardly a risk free investment.
Who ever said they need to wait to cover their short with the shares in the convertible? They can cover at any time. With deep out of the money convertibles there are several stategies professionals use. Convertibles are awful for stock price, cause as the price goes higher they short more and if the price rises close to the strike price dilution starts to be factored in putting more pressure on price.
Basically management just trapped the stock to a MAX of $24, not including a buyout announcement (probably much lower than that) but downside can keep going. For an example, see the price range of the previous offering. It is not a coincidence the stock has been down every single day since Sept 7th announcement. For a real example, see the converts from 2013, stock was around $14 when announced, dowsnide was $9.50 but upside capped @$19 (not including buyout) for 5 years. Same will happen yet again. Hate this management team.
https://www.wallstreetmojo.com/convertible-arbitrage/
https://convertarb.net/?page_id=697
I hate to re-quote an old post but the Debentures have ruled their ugly head as predicted above. This had a nice pop on earnings and has been obliterated ever since to now well below where it was prior to earnings. This will continue to happen anytime the stock approaches $24 as debenture holders (and other shorts) hammer it with short orders. Tons of momentum is needed to overcome the dilution these debentures bring which this stock does not have despite blowout earnings and it's largest competitor unable to even compete. If it werent for debentures this would be at $30+ instead this will have massive resistance whenever it approaches $24.