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Strategies & Market Trends : Floorless Preferred Stock/Debenture
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To: Zeev Hed who wrote (1333)12/19/2001 9:32:35 PM
From: Roger A. Babb  Read Replies (4) of 1438
 
Zeev, check out the $1 billion Calpine CPN convertible. Not a floorless, but still ugly for shareholders I think. The coversion price is a 23% premium, but the holders have a "put" option on the bonds to get their money back until April or an option to get another $200 million of the convertible.

If the share price does not go up enough, they exercise the put.

If the share price goes up enough, they exercise the other $200 million.

Another scenario is that they short the heck out of it as a hedge. If by some miracle the stock goes up anyway, they convert to cover. More likely they exercise the "put" which will cause a huge liquidity crunch and drive down the share price whereby they make a big profit on the short side. Looks like they can't lose.
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