Dnorman, that depends on many other characteristics of thew stocks itself. It does not seem to be a "floorless" to me, so if I was one of the debentures' holders and did not see any danger of an imminent decline (due to recession, or overvaluation, or fundamental changes in the company), I would let the stock go above the conversion price a good 30% to 50% (of course I assume these guys know more or less what are the probabilities of such a move), and then lock in the profits with selling short against the block. Even then, if the stock has solid underpinning and a good growth story and the market "cooperates", I may let the stock ride even more.
Actually, the fact that the conversion ratio is above the current market price indicates that the lenders believe that the stock will go to a premium to their price, and thus you might imply that the company is in relatively good shape obtaining such solid financing. What is the interest rate of this convertible?
Finally, the overhang of supply will be only slightly north of 1 MM shares (assuming shorting against the box above the strike price), and if this is not a big chunk relative to normal trading, it might be a "non event".
Mind you, all these are "general statements" since I have not looked at the company and used only the limited information you have provided in your post.
Zeev |
