But did they make any money shorting against the preferred shares?
Economics of shorting against preferred - The average sale in last ten days was about 5.50, giving CC a gain of about 23% versus the 4.47 conversion price. But in order to get the conversion price down to 4.47, it appears CC shorted about 400,000 shares at an average price of less than 4.73, from the time negotiations fell through with Valence, to the time they converted. The average price for selling stock over the entire timeframe is only 5.05, only a 13% gain from the 4.47 conversion price. Considering the money has been tied up since January, they only got an 18% annualized ROR.
They did much better on the Series A preferred, and I don't think this low ROR is consistent with their goals. I doubt they will try another death spiral attack on the stock. They simply don't make any money at it, contrary to the advocates of the "death spiral" scenario.
This is primarily due to the steadfastness of the longs in this stock. The stock simply didn't fall fast enough for the death spiral to get to the hyperbolic range. Most holders did not panic, and quite a few have soaked up CC's shares. CC has apparently dumped 700,000 shares on the market in the last month since negotiations with Valence ended. Yet the price on last Friday is roughly the same as the price was on August 20, before they began dumping the shares.
All that selling, and they couldn't keep the stock price down. No wonder the proponents of the death spiral are sounding a bit shrill. The "floorless bandits" needed to have the longs panic, and stampede for the exits, but the longs didn't cooperate.
Another reason they won't attempt another death spiral attack is a lack of selling support from shorts- they won't short along if they think CC will convert near their shorting price.
Finally, there is the compelling evidence from Thursday and Friday. The overall market conditions were terrible, volume in Valence stock was extremely low. The bid price even briefly dropped below 5 on Friday, and sat there for almost an hour (with no hits). It was a perfect opportunity for CC to push the price down below 5. And if they wanted another death spiral, they surely would have done it… But they didn't. They kept their ask at 5 1/16, and wouldn't lower the ask to 5 and wouldn't hit the bid at 4 15/16. Basically CC hit their floor selling price, or was running out of shares to sell.
Right after this, the stock started to see some volume. Clients who trade through three market makers who handled lots of sell orders (shorts) in August, now began to take CC's stock late Friday afternoon. Are they covering? I think so, but they will find it difficult. If CC is almost out of shares, there soon won't be anyone selling.
CC's conversion price on the remaining preferred is right now about 5.26 per share, and they wouldn't make much money shorting against their preferred. Given their experience, I don't think they will try another death spiral attack. So when they finish selling the shares they received from the conversion, they will likely stop selling. And I don't expect to see another conversion, unless the stock price jumps.
So in summary:
CC apparently shorted 400,000 shares from August 23 to September 10.
Since then they apparently have sold about 300,000 more.
And at this point it doesn't make sense to short against unconverted shares.
Conclusion: CC is almost done selling for now. They sat on the ask price for a month, dumped a ton of shares, and the price is essentially unchanged over that time period. They won't continue to sell by shorting, hedged by their Series B preferred.
Paul
|
