Jay, because there is always a danger that such a fall will develop into a spiral. At $6/share, CC could convert to 1.25 MM shares. Now that the stock is under $5/share, CC can increase its short position by another 250,000 shares, that will put pressure on the price which if not countered, could get the price to $4/share. Well, at $4/share, CC can short an additional 375,000 shares (total short position of 1.875,000), these additional shorts put further price pressure creating a spiral down. If that is not stemmed (and it would be best stemmed by some material PO's), VLNC loses its ability to raise capital (which they still will need at the rate of about $7 to $8 MM per quarter?), and the worsening cash position will together with the incessant pressure from the floorless cause massive price deterioration which sometimes, in other floorless situations, have caused "death spiral". Until some PO's are evident or a determined buyer appears on the horizon to balance the weight of the shorting a slow but steady decline could occur. It has in other situations, and it might here as well.
Zeev |
