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Strategies & Market Trends : Floorless Preferred Stock/Debenture
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To: Mama Bear who wrote (451)6/14/1999 11:48:00 PM
From: F. Lynn  Read Replies (2) of 1438
 
Based upon my knowledge of other situations not identical but similar, I would guess the bandits can't use their debentures as collateral. Here's why:
Some time ago I read about a Chicago arb firm called Scattered that did alot of shorting of bankrupt equity/purchasing warrants for post-reorg bankruptcy. For one in particular, several years ago, they did this play with the worthless shares of a bankrupt construction firm (I forget the name but was fairly well known.) They would buy the warrants, and then short stock equal to whatever # of shares they could exercise the warrants for.
However, the worthless pre reorg shares rose on the strength of the company's name, and Scattered's brokers hit them with margin calls, even though anyone could see that it was an arb situation with no real risk.
I'm guessing most brokers won't consider the convert securites when making margin calls: I doubt the Fed regs would allow them to even if they wanted to. But this is just my guess.
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