Quarterhill Inc T.QTRH

Convertible debenture premium

[mrmoribund]

With the stock currently at $2.54 the premium on the debentures is just a sliver below 50% ($2.54 x 1.5 = $3.81 / debentures can convert at $3.80). Actually, the premium is even higher than 50% given that the bid for the debentures is currently $104.01. Typical with a convertible new issue the premium will be about 25%. See below. So what's going on? Someone here noted that the debenture issuer was permitted to do due diligence prior to the issue. So they may have had reason to nudge their debenture-buying clients in the direction of a more upbeat view of Quarterhill than the public market seems inclined to adopt right now. That said, it could just be that hedge fund debenture buyers are so single-mindedly fixed on completing their LONG debenture / SHORT common positions that they'll just keep pushing pretty much no matter what. Regardless, it looks like there's an overhang of short-driven sell orders. Eventually (probably pretty soon) the desire for this LONG debenture / SHORT common trade will be satisfied and the huge premium will shrink. ============ https://www.wildlaw.ca/resource-centre/legal-updates/2020/convertible-debt-financings-fixed-conversion-prices-and-downward-turns-in-market-value/ Convertible Debt Financings: Fixed Conversion Prices and Downward Turns in Market Value Wednesday, April 22, 2020 Read online or download the full update here. Background Convertible debt financings in both the private and public markets have become increasingly common in recent years. One of the key characteristics of a convertible debt financing, determined at the outset of the deal, is the price at which the debt will be convertible into equity or the Conversion Price, which may be: (i) fixed, (ii) floating, or (iii) a combination of fixed and floating. The ongoing comprehensive study conducted by Wildeboer Dellelce LLP of convertible debt deals completed in Canada over the past 21 months (the Study) provides insight into the relative use of fixed versus floating Conversion Prices. Private companies typically either use a conversion price based on a negotiated valuation (given the lack of transparent market for their equity) or use a floating conversion price that is tied to a discount to the pricing of a qualified financing the company expects to complete in the future. This article focuses on publicly-traded corporations which, as you will see, typically favour a fixed Conversion Price (presumably, at least partly due to restrictions contained in the policies of certain stock exchanges). Convertible debt deals with a fixed Conversion Price set a static dollar value at which the debt may be converted into equity, which is set at a premium to the trading price of the underlying equity securities at the time the deal is announced. The Study shows that the median premium by which the conversion price exceeds the share price at the time of issuance of the convertible debt is 25%, but premiums range widely. Any incentive on the part of the holder to convert is contingent on the value of the underlying equity securities increasing from the date of announcement beyond the premium pegged as the fixed Conversion Price. If the trading price of the underlying equity securities remains stagnant or decreases over the term of the convertible debt, the conversion feature will be out of the money and the holder would simply hold the debt to maturity. . . . . . . .

[mrmoribund]

The $104.01 current bid on the convertible debentures equates to an effective conversion price of $3.9524 (= $3.80 x 1.0401). This in turn indicates a premium of 55% ($3.9524 / $2.55). Of course you can't simply ignore the interest payments on the debentures--which is part (but only part) of the reason there is a premium. Still, 55% is quite the premium. Paul knows more about this kind of

[Joey67]

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