RE:RE:RE:RE:FullThese are valid points, but at some point people will switch from the convert to the stock, as no one bought these converts for the 7% coupon. I think I should have made my point more clearly, which is this: if the underlying stock price moves up a decent amount in a short period of time (for example, your 30% in 30 days) then conversion is likely, as you say, and then you'll have a bunch of new shareholders with a $1.06 adjusted cost base. And if the underlying stock price has, for example, moved up to say $1.45 then look out below... there will be sellers of that stock, which shares are not even in existence today.
Don't get me wrong, this convert was an intelligent and creative piece of financing that was a much better alternative (and more sellable) than raising equity at current prices. But this re-finance has now wrung the last bit of financial juice out of the company with which to fund another acquisition or two, and then they will need to go back to the market and raise equity. While they are losing money that is a certainty. Unless they stop making acquisitions.
So there will either be more financings at higher prices later, or there will be a reckoning where there is a forced equity financing at a valuation that is unpleasantly dilutive.
watch22 wrote: finance 101.... nobody converts covnertibles early. Why would they... they can KEEP the SAME exposure to the stock and get the yield on the notes.
If they think the stock will fall once it "in-the-money" then they can sell the converts (at a premium) ... they would not and never do, convert to sell the shares.
That's why the company has a call right when the stock price is 30% in the month for 30 days or whatever it is... then they can FORCE conversion to save on the interest costs.