Nice piece of work, Paul!
I've been watching this trading pattern, and have been coming to the same conclusion regarding the end-game we're observing here. The hard estimates you provided, of the 'cost' to the short coalition to attempt to push the stock down further from here (assuming no great wave of additional margin-related selling takes place, which I would consider unlikely, in contrast to last year), reinforces the argument that it *just doesn't pay off* for them to keep pushing lower. (This presumes, of course, that the buyers supporting the stock persist in their efforts... which I suspect they will, since the strategy is working.)
Larry posits a reasonable speculation, that it is one person doing the buying and the selling. But the trading pattern on level II does not indicate that. The primary short MMs have been REDI, ARCA, and INCA. REDI started pushing down on the ask from the 7's more than two months ago. Draw your own conclusions there, as to their alliances. Strength on the bid has been from a variety of sources: PRU, WIEN, SWST. And many retail clearing houses working both sides: NITE (mostly short), MASH (mostly long). But there is also a battle being waged in between which can only be inferred. Such as a few days ago when every time REDI showed on the ask, someone took him out completely. Clocked him for all he was worth. These guys know each other, and they've taken their measures over and over.
Larry's totally right about one thing: the stock is in play by the big boys. But 10:1 that the outcome is positive for the company in the end, meaning closure of the floorless, and the stock repairs itself quite rapidly.
I've also been considering how the short position grew steadily this spring, while the stock exhibited a classic 'rolling stock' trading pattern. Castle Creek could very well have shorted every rally above $7.5 and covered every time the stock dipped to $6... but then chosen to retain the 'long' shares, without closing their short position. This would provide them a wider range of options when it came to this end-game. Such as, they could have used some long shares to sell, in cases where shorting was not possible, and still have been 'honest' in reporting that they 'weren't shorting much lately.' And they would not need to convert any of the preferred shares to acquire long shares they might want for such purposes.
As the risk continues to be taken out of the investment, Castle Creek will likely want to retain as many long shares as possible, as you noted.
Thanks again for tackling a complicated issue with the thoroughness with which we've become accustomed to seeing in your posts.
As a postscript, I concur with your comments regarding the wording in the previous SEC filings which allowed Castle Creek to claim they were not truly 'beneficial' holders of more than 4.9% of the stock, and thus avoid filing any changes in beneficial ownership as they hedged in and out. This interpretation flies in the face of the intent of the SEC regs, whose purpose are to inform stockholders of the actions of the large shareholders in the company. But as they were worded, the S-3s provide a legal loophole for Castle Creek, and surely this is not by accident. |
