Convertible vs Share price: the inverse relationship
While Thera share price went down, the convert price went up:
https://www.stockhouse.com/companies/quote/t.th.db.u/theratechnologies
On the other hand, someone on this board raised the question (and doubt) regarding the theory that buyers of the convert were short-selling the shares for risk management. The poster posits that it would make no sense why they short-sell at $C11-12 to cover 4 years later at $C19.xx .
Well, it makes sense if one think this way:
1/ They would cover at any points there will be a firm indication of Tregarzo sales taking off as a blockbuster. These people would know well ahead of the market !
2/ These buyers, collectively, handed Thera $57 million for $3.x million annual interest for 4 years. Would anyone guarantee Thera will pay them back this money (with interest, of course), given these notes are unsecured ?
What if Thera went BK ? What if Trogarzo sales were less than desirable and SP went down ?
They would likely lose the whole $57 million in that BK case !
Now, if they short the stock at $12, they would be able to hold on to 63% of their capital, even in the event of a unlikely Thera BK. This percentage is likely computed with their actuary formula using the likelyhood/probability of a Thera BK.
In short, in all scenario ranging from the worst (BK) to a failed Trogarzo, to a successful blockbuster Trogarzo, this Risk management strategy would cover them all.
That would explain this shorting activity during the last several weeks.