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Technology Stocks : LUMM - Lumenon Innovative Lightwave Technology Inc.
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To: Fred McCutcheon who wrote (1913)7/29/2000 12:46:12 PM
From: jjs64  Read Replies (1) of 2484
 
Castle Creek are to the best of my knowledge convert/discount deal players. My guess is that they will quickly move to hedge out their position, if they have not done so already.

The following is for the touts:

Considering that LUMM raised 35m in convertibles at 7.5%, which contrary to what the touts are saying, is actually a very high priced, terrible deal.

Converts for legit companies are done at lower rates than bonds (since the buyers get the upside on the stock) and at a PREMIUM to market. This is what is referred to as the "Conversion Premium"

LUMM's deal is a discount convert, and while not as bad as a floorless, it is still pretty bad.

Look at the math, because its important! The investors were given approx. 5m warrants that at time of issue were struck at $10 (remember LUMM was around $22 when the convert deal was struck).

What is the value of this warrant position?

5m X ($22-$10) = 5m X $12 = $60m

Thats right...$60m in profit just from the warrants right now, and we have not even factored in the converts!

While LUMM may have gotten 35m in funding, the investors now have 60m in profits for the warrants. Right now, the investors have made a minimum profit of $25m ($60m - $35m = $25m), and LUMM still have to pay them 7.5% interest, they will make more money still on the discount convert feature, and the common shareholders will STILL be diluted even further.

This deal is so ridiculous I can barely contain my contempt.

Buyer Beware!
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