Post by
RetailRube on Oct 22, 2018 5:53pm
Final Issue: Debenture Refinancing due in Dec-2019
SOX has a convertible debenture of $80.5m which must be redeemed in Dec 2019. These debentures can be redeemed (at the option of the company) by paying in common stock at the price in the market at the time. So debenture holders cannot force SOX into bankruptcy.
I calculate that at a $5.00 common share price, SOX would have to issue 16.4m shares to redeem the debentures.
If SOX wanted to keep the same total dividends as today's common share dividends + debenture interest, they would have to cut the 48 cent dividend to 40 cents. Hardly the end of the world. Hardly bankruptcy territory.
There is a profitable trade for debenture holders here. Legal too. Borrow the common shares and sell them short. This would drive down the conversion price, giving debenture holders more common shares during redemption. The short is covered by the shares the debenture holders will receive at the end of 2019. I suspect this is a big part of what is driving down the share price. If I am correct, then the short interest is ballooning. But I cannot check this. TSX short interest for SOX is now behind a paywall. (sigh). if someone could check this and report back to us, that would be helpful.
The company's defence to this trade would be to announce they will refinance with another debenture or other debt. The shorts would then be squeezed. But you have to be able to prove you have the financing agreed. And don't announce it in a tweet. Elon Musk already tried that and it didn't end well.