Mooter, some of your numbers are off a bit.
First, the first 3000 series B preferred converted into approximately 690k shares at 4.47. If CC converts the remaining 4500 shares, they will get slightly more than one million shares at the current conversion price of 4.66.
I agree with the posters that say that CC has already completely hedged the 1.33 million shares they received for the series A at a price higher than the conversion price of 6.03.
So why did they convert? Clearly they couldn't find any additional shares to short against the series B preferred... They likely have been shorting against the series B since negotiations with Valence on the floorless collapsed around August 23. So they needed to convert the series A to free up shares to finish hedging the series B. Furthermore, I believe they probably began converting the series A about a week before the Valence conversion announcement. On CC's first conversion, the announcement came on the third day after the conversion decision.
So the key question is:
How many shares has CC sold against the series B at this point?
I was going to post this Thursday, but held back.
Identity of recent seller open to question.
I estimate that the seller using market maker JPMS sold over 100,000 shares today, for around 600,000 sold since they started selling.
A contact talked to the company today, and heard that the interim financier claims they aren't this big seller (contrary to my previous theory).
If this seller isn't the interim financier, then it is possible that the selling coalition is responsible for this selling... If this is true, we can estimate the remaining shares left to hedge CC's series B preferred. The selling coalition has sold over 1.5 million shares since August 23. They sold about 400k prior to the initial converion, 500k through INCA/REDI/SKLC from the conversion until Oct 8, and about 600k through JPMS the last two weeks.
The initial conversion was for about 690k shares, and the remaining series B converts to about 1000k shares for a total of 1.7 million shares. If CC is behind the recent big seller, then they are almost out of the game.
Since then, JPMS sold some more shares, not to mention selling by CC through INCA and REDI on Friday. But with the price going up, and CC almost out of shares, they have no firepower for another attack on the stock. Since they have shorted so many shares against the series B at an average price around 5, they have to convert soon. They can't let the conversion price climb above their average short price at this point... they don't have enough shares left to push it down again.
The argument against converting the series B because of the time value of the equivalent put option, became academic once CC made the decision to keep the attack on after the partial conversion. MGV is completely off base on this one because he didn't watch the activity of the large seller on Level II. He offers up a nice academic theory that doesn't reconcile with this particular situation. Also his argument that the stock sold off on worsening fundamentals doesn't fit the tape action, where well over 50% of the selling is coming from one seller on any given day. This theory also is in conflict with increasingly better fundamental forecasts from the company over the last four months.
Finally, I think indications that we are close to a PO will become increasingly evident over the next ten days...
So hence my prediction that CC will convert within two weeks. They must, because they have already sold so many shares short against their remaining preferred.
Paul |
