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Biotech / Medical : Avitar AVR:AMEX
AVR 4.533+5.2%Oct 31 3:59 PM EST
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To: country bob who wrote (56)9/29/2005 1:59:42 PM
From: SI Bob  Read Replies (1) of 58
 
The floorless convertibles were the biggest red flag for me. Those rarely turn out well. I have no doubt that the entities providing the funding are shorting the stock as we speak, knowing that they can cover with stock they'll receive, and the lower the price goes, the more stock they'll get, so the more they can short, ad infinitum. They're called "death spiral debs" for a reason.

I won't look at this one again until/unless they can start making hefty payments on the borrowed money, reducing the amount of stock they'll have to tender. If the lenders are shorting the stock and counting on depressing the price to get more shares with which to cover, paying them back in cash is the only way to thwart them and squeeze them to cover.

I've seen plenty of viable companies get driven out of business this way. If I were a public company, I'd never contemplate floorless debentures, or if I did, I'd have to feel VERY certain of my ability to repay the loan in cash rather than stock.
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