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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: upanddown who wrote (96853)2/15/2008 3:25:46 PM
From: GVTucker  Read Replies (1) of 206326
 
John, RE: Curious about the pricing on PIPEs. The last one priced at $31.25 on a day when the mkt price was about $3 higher. Is there a fixed discount to mkt price on the closing date?


It is a discount that is negotiated between LINE and the purchasers (mostly hedge funds).

Why not buy the PIPE and short the common? Seems like you lock in a risk-free 8-9% return or 16-18% annualized if the lockup period is 6 months. Probably would beat a lot of hedgies over that time period.

The documents for the PIPE prohibit this type of activity. That doesn't mean that there are funds that find a way around this restriction, though, and do exactly as you say. But the funds that do this type of things are definitely ethically challenged. Sometimes they blatantly break the law, and there were several PIPE funds that were busted by the SEC either last year or the year before for shorting a PIPE offering when it was explicitly prohibited by the docs.
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