Parallel Energy Trust T.PLT.DB

Why PLT.DB is important to understand what is happening

[bill_29]

Folks -

For those of you monitoring PLT.UN, it is important to also monitor the behaviour of PLT.DB. This is the convertible debenture that Parallel issued in April 2012. Recall that a convertible debenture is basically a bond that provides the holder with the option to convert to common shares. As such, the convertible should behave similar to the stock when the stock price is above the conversion rate (i.e. +$9.50 - not likely), but like a bond with a coupon when the stock price is below. In situations like this, where the stock price is far below conversion, the convertible becomes distressed and no longer trades near its face value. Right now PLT.DB is trading at around $38.50 even though the face value is around $100. What this says is that the holders are worried about default because they are not sure if the issuer will be able to make payment in 2017.

Why is this important? If the convertible is moving up, it means that sentiment in the market is that the issuer is becoming less likely to default. Although the upward trend of the debenture may not affect the share price directly - because the debtholders are typically not the same as the shareholders - the reality is that the share price should also move up. In Parallel's case, the convertible price has been moving up recently, not down, which means sentiment around default is lowering. As such, the question becomes "Why is the share price falling?". The answer is probably short sellers rather than fundamentals.

Now why is this important? It behooves management to make efforts to adjust the behaviour of the short sellers as they will most significantly impact the current price in a market such as this. One way to address this is to issue a Normal Course Issuer Bid which allows the company to buy back shares to maintain the price at a reasonable level and to signal short-sellers that they are going to lose money on their trades as there will be buyers on the other side. This is basically what Eagle has done (again, not an endorsement - just pointing it out) and is the type of thinking that Parallel should be applying. That said, Parallel does not have a lot of cash at the moment to make such a move, but this is just one example of what they could be doing.

My point is, in a market like this is it important that the company get ahead of the curve, and not behind it. Personally, I believe Parallel is going to get through all this, but whether it is the same folks at the helm is another question...