Parallel Energy Trust T.PLT.DB

RE:RE:RE:Investors dumped the stock and bought the debentures

[bill_29]

This is an interesting post, but it is actually what is called a "straw man" argument. It attempts to divert the discussion in a direction which has little to do with the original assertion.

The question is not whether the trust will succeed or fail in the long run. This is difficult to ascertain given the market behaviour, fundamentals, commodity prices, etc. It is simply a prediction as to the potential movement of the unit price in the near term. I trust this is what most investors are interested in today.

Just so that we get back on target, here is the observation once again:
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Some good news!

Once Parallel's stock price fell below a certain floor level - typically $1.00 - in the eyes of the broader investment community it effectively became a "penny stock". What this means is that the majority of large conservative portfolios firms were unable to continue to own the units due to investor covenants and portfolio holdings restrictions. This is why we saw such large block trades in November, December and January as portfolio managers divested of PLT.UN. When this occurred, a huge number of units were sold out to the retail market which caused the price to drop for two main reasons; a) the large size and number of sell orders and; b) the only investors buying were small and fearful (the retail market). This situation also brought in the retail short sellers, as well as stimulated additional "panic" sales in the retail market which made the situation even worse.

Now we have recently seen increased interest in the associated debenture market. Someone commented that this is a "correction", but we need to put this into perspective. The debenture price has risen from $36.00 to $40.00 in one week. That may not seem like a lot, but you need to think in terms of how much money has changed hands and the size of the lots. If you look at the number of units traded for PLT.UN and PLT.DB - and the size of each trade - you get a better appreciation of what this move means. 

Specifically, in the last week PLT.UN traded 1685 times with a dollar value of $1,350,000. That's an average trade of $1,240. Obviously, these are retail trades.

At the same time, in the last week PLT.DB traded 321 times with a dollar value of $75,800,000 This is 50 times the trade value of PLT.UN with an average trade of $236,000. These are probably NOT retail trades.

Now remember... the price of PLT.DB is going UP, not down. So what this is saying is that the larger - and typically more plugged in and more informed traders - are seeing a lower likelihood of default which suggests sentiment in the broader market for the issuer is improving. As such, while the retail market panics - and pushes the price of the common units downward - the larger more informed investors are taking a longer term perspective and bidding up the debenture price.

So what this means for the common units is that the price should trend up as the panic settles.

Of course this is not a guarantee, but it is probably a pretty reasonable indicator. Interesting to see what happens...

Joe454 wrote:
HaHa , 215 million debt and cash flow cut in half , not too far off if oil and gas keep heading south. Yea sure they're partly hedged , but its not enough. They're in a pickle that's for sure , and many other high debt oil&gas companies are in the same boat , the vultures are circling.