RE:RE:Analysis From Orange Peel Investment, Seen This Rodeo BeforeTo clarify, I am NOT Parke Shall but share his view of the Concoordia's capital structure (and it sucks big time). I merely posted this from an article on the Seeking Alpha site and I indeed have skin in the game. I am also short the bonds and because of the lack of borrow available I also short with bear call spreads. Regards.
CYBERPUNK wrote:
CYBERPUNK wrote:
Obviously, we think bondholders are getting nervous for good reason. With the CEO recently stepping down and the company suspending its guidance, it is looking more and more as though it could potentially be being groomed for a bankruptcy in coming weeks. A bankruptcy situation would almost be a guarantee to wipe out the equity completely. Junior unsecured bond holders would likely have to fight tooth and nail to get any restitution, and those very senior on the capital structure will make back most or part of their investment and may take a larger converted equity stake in a re-organized entity, if the company doesn't liquidate.
The main reason that we wanted to write today was to remind investors that even though the stock is trading at $2.60, there is still 100% downside. That's one of the great things about the mathematics of trading - your potential loss at any given price is always 100%. In a bankruptcy scenario, we would expect the equity to trade for probably around $.30 and then potentially lower after a couple of ridiculous technical and moentum bounces. A bankruptcy scenario often brings in day traders and momentum traders who look to try and capitalize on bounces and small runs in an equity due to the massive inflow of liquidity that takes place during a bankruptcy scenario.
Like we did with SunEdison (OTCPK:SUNEQ), we want to remind investors that potential loss still remains large, even if you are investing here at $2.60. All of the signs on the wall are pointing to a bankruptcy situation. You have the CEO stepping down, you have the company suspending guidance, and most recently you have Debtwire writing about unsecured bond holders threatening litigation to the company if it doesn't start to seriously consider bankruptcy scenarios. The equity would almost certainly be 100% wiped out eventually in this situation, and we wanted to be the canary in the coal mine for investors who may be looking at this company and thinking there's still a chance it survives and flourishes with its current share and capital structure.
Disclosure:I/we have no positions in any stocks mentioned, but may initiate a short position in CXRX over the next 72 hours.
davinmiss, I stand by my belief that the company has misled investors and their silence even now continues to leave them in the dark. The steps that a company takes before Chapter 11 is always the same - this is not my first rodeo. (although I have to say that the way Concordia has progressed to this stage thus far has been remarkably quick and I don't ever remember a company's bonds falling off a cliff so quickly.) If you think they have loads of cash, by all means buy more shares. No one is stopping you. And Maybe pass on to the new CEO that a trading ban has been over now for over two weeks.. He is more than welcome to buy shares too at these "cheap" prices and with his sign on bonus he certainly has the dough. Baggie, aka Lumber, your only bull thesis is that the company is "not going bankrupt any time soon." So you mean they have until Spring to go bankrupt?
The shorts aren't covering until the stock is trading on the pink sheets because its over for Concordia. My biggest problem last week was finding more borrow along with about 500 of my pals and thousands on twitter. Someone big looks like they have frozen it and I have a hunch I know who that is.
Good luck all, and have a great thanksgiving weekend. I have a lot to be thankful for.