Seems CC would convert.
Based on the information we have, it would seem to be in CC's favor to convert. If they did, the stock would immediately rebound, once the news is out.
Some have argued that CC wants the downside protection. I don't get this. If the stock rebounded to 7-8 range, they could likely buy puts at the 5 strike price for a half a buck apiece. By converting, they lock in a 4.45 price, which improves their position, they can sell into the short covering rally, and buy puts on any unhedged position. They can lock a nice profit up easy.
If CC is a long term bull, then they almost certainly would convert as well to capture the low share basis.
If CC was playing the death spiral big time, and is short over a million shares against the second tranche, then they would convert to cover their shorts.
The only case I can come up with where they don't convert, is that they have only shorted a few hundred thousand shares against the second tranche, and would like to try another death spiral attack.
But even in this case, CC would be aware there is a huge naked short position. The CC short position against the first tranche is about 1.3 million, plus a few hundred thousand against the second tranche, probably leaves about a million naked shorts out there. In the next attack, these shorts will cover at some point, and CC will run into likely insider buying in the low 4s. Instead an expensive share stripping death spiral attack, they could convert and play the rebound on short covering.
It simply isn't logical to infer that CC would pass on the conversion, in favor of another death spiral attack.
Of course, a likely outcome is that CC and Valence have reached an agreement in principle to end the variable conversion. This would explain the lack of volume for the last three days.
Paul |
