RE:RE:RE:RE:RE:RE:Another picture - $50m 6% Debentures vs $50m common sharescabbieJBJ wrote: That's very interesting shareholders. I missed that on first reading of teh ddebenture document that has been filed on Sedar.
It says,
"Subject to any required regulatory approval and provided no event of default has occurred and is continuing, the Company has the option (the “Share Payment Option”) to satisfy its obligation to repay the principal amount of the Debentures, in whole or in part, due upon redemption or at maturity on not more than 60 days’ and not less than 40 days’ prior notice, by delivering that number of freely tradable Shares obtained by dividing the principal amount of the Debentures to be redeemed or which have matured by 95% of the Current Market Price (as defined below) on the date of redemption or maturity, as applicable."
My understanding is that if the stock price is, let's say, $6.00, the debentures can be redeemed for $6.00*0.95 or $5.40 per share = ~185 shares per $1,000. If all debentures were redeemed at this rate, the dilution would be 9.26M shares versus the 13.16M shares at the original $3.80 price quoted in the debenture offering.
Two additional points to note:
- Debenture interest can be satisfied in shares rather than cash, at QTRH's option; and
- Debentures receive dividends should QTRH increase the dividend above the $0.0125 per quarter.
At time of redemption, the convertible debentures are rarely redeemed in shares for these reasons:
- When the price is above 125% of the conversion price, the debentures can be redeemed with a 30 or 60 days notice. Usually, if the price is above the conversion price, it means the company is doing well and could repay in cash and issue new debt instead (convertible debentures or not). When the notice is given, the holders will convert into shares prior to the redemption at $3.80 since it's in their interest.
- Close to the date of redemption, if the price is above $3.80, it is in the interest of the holder to convert to shares (and sell the shares). Some holders will short the stock when they feel the price is adequate, then keep the debentures for extra revenue (depending on the coupon vs dividend paid) and convert the debentures to cover their short at some point.
The 95% conversion to shares at market price is usually there so that the convertible debenture is considered equity by the banks for loan purposes. If the company needs cash and their share price is below the conversion, they can still issue stock, albeit at lower than $3.80 instead of using cash (and possibly breaching debt covenants). Since it's incredibly dilutive, it is rarely used by companies, who usually repay it back and find some new form of financing instead.