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Strategies & Market Trends : 50% Gains Investing
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To: Biomaven who wrote (117953)2/19/2014 2:53:23 AM
From: ElroyRead Replies (1) of 118717
 
The person who is short the warrant (because they were short the Common when the warrant got issued) has to pony up shares if someone pays them $8.50.

So a short has the ability to automatically create additional warrants which apply to them rather than than to MHR? If the warrant holder exercises the warrant, the short gets $8.50 cash and has to deliver the shares. Seems odd, but perhaps it's true.

These warrants are weird creatures. If the company wanted to, and the stock was trading at under $8.50 in September, they could just make them go away by declaring the registration statement effective. If the stock stayed under $8.50 for the following 30 days they would essentially expire worthless. So it's hard to put a value on them - to some extent it's at the discretion of the company. (If I were asked to value them today for financial accounting purposes I'd be scratching my head how to do it.)

MHR did exactly that with the previous set of warrants with a (I think) $11 strike price. They vanished. But the current warrants are in the money, so they're worth at least the MHR share price minus $8.50. As I understand it they will serve as a different way to do a secondary offering if they are declared effective (MHR will receive 1/10th the number of shares outstanding x $8.50 cash) and I think they said they plan to use those funds for CapEx and debt reduction. I have no idea why the prefer warrants to an actual secondary, if anyone knows please share. If MHR stock goes to $15.00 I'd rather see them doing a secondary at $14.50 rather than the warrants at $8.50.
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