Globalstar Telecommunications Limited GSAT Message Board

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Microcap & Penny Stocks : Globalstar Telecommunications Limited GSAT

GSAT 58.82

+16.4%

11:27 AM EST

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To: Jon Koplik who wrote (13746)	6/22/2000 2:50:00 AM
From: Maurice Winn	Read Replies (1) of 29987

Jon, as you know, some of us find bonds absurdly complex to understand. By running the bonds up to 28c in the dollar, I suppose that means that when the money is paid back, you get a whole dollar back by paying 28c now. You also get the interest rate which was offered on the original dollar until the loan is repaid. How's that so far? Okay, if that's right and there is $2bn loaned to G! [I don't know the exact figure] then that debt can be bought right now for $560m - assuming everyone sold their loan for 28c. Since the bond holders and a few other creditors would own the company if it went bankrupt, then the new owners would get to own the whole thing for $600m at today's prices. That is an absurdly cheap price for a wonderfully functioning asset which will still be working 8 years from now. 10bn minutes/year for $600m with a 6 year [being super gloomy] depreciation: $100m per year depreciation and 30% return on that $600m = $280m per year needed to cover the investment. That's not quite 3c a minute wholesale price. I think they could do that! So the downside risk for bond holders is near zero at 28c in the dollar and they get a four bagger plus interest on $1 bond which would be at least 30% per year until repayment. Bond holder buying at 28c in the dollar are going to make a fortune with negligible risk. Does that make sense? In which case, why on earth are bond holders selling their bonds for 28c in the dollar? Are that as stupid as it seems? Shareholders in the same period will make even more money: $7 a share [on the shortest day] x 30 = $210 a share. But shareholders carry the risk between between the current market capitalisation and the $560m which the bond holders are paying in the event of bankruptcy. Since I don't think there is significant risk at $7 a share, I'd rather get 30x my $7 investment than 6x my 28c. It really does make me wonder who is selling their bonds and shares at these prices and what they are thinking. Even the enthusiastic short Geoff Goodfellow has gone long and is now back to even. I suppose bonds are more attractive to a lot of people who are more risk-averse and less greedy than some of us. Is that how it works? Maurice

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