Gerald, not only "riskless, if they sell short today at let say $8, they will sell short enough stock to cover their debenture (450,000 shares time $5.5 is $2.5 MM), they get in this transaction $3.6 MM, and now, they do absolutely nothing, so they pocketed $1.1 MM already, they get paid 9% on the $2.5 MM (but have no money committed), and if the stocks rocket to $100, they have no risk, but if the stocks goes to $4 (a likely scenario IMHO), then they can short on top of the 450,000 shares they have another 250,000 shares (2.5 MM/$3.6) for a total of close to 700,000 shares, what happens now, of course, the selling pressure of the shorting causes additional price erosion and the stock continues to decline thus allowing them greater and greater short position.
Zeev |
