Pretty dumb here, but I don't see how the shorts have to supply any warrants.
The shorts borrowed shares from someone, and sold them to another person. That's only one actual share, but two people think they own it. One of the longs has had his share lent to the other long. Both longs think they have warrants, but MHR (I think) only issued one warrant for each actual share. MHR didn't issue two warrants for one share which has been borrowed and sold by a short..
I'll make up the numbers because I forget MHR's actual share count. MHR has about 30% (??) of the float short.
So if MHR has 100 million shares out, and 30 million are sold short, there are 130 share equivalents held long. When MHR issued the warrants, they only issued 100 million warrants, right? They don't care if someone else borrowed and sold 30 million of the common stock short, they only issued warrants corresponding to their shares outstanding - 100 million.
So where do the 30 million extra warrants come from, that's my question. Perhaps they were also immediately borrowed from the same guy that lent their shares to the short, and then sold to the guy who bought his MHR stock from the short?
And the second question is what happens as the warrants get exercised? They cease to exist. So if a short borrows a warrant to accompany his short position, and the actual owner of that warrant exercises it and it ceases to exist, the short would need to cover because the warrant no longer exists and cannot be borrowed.
I'm not sure how this works, I'm just guessing. But if MHR issued warrants in an amount corresponding to the actual number of shares outstanding, I'm really not sure where the 30 million extra warrants come from to satisfy the shorts. And if there are really 130 million warrants outstanding, and they ALL get exercised at some point, that will produce 13m X $8.50 per share in cash. MHR will receive 10m X $8.50 cash, and issue new 10m shares of stock in return. Who gets the extra 3m X $8.50 cash, and how do they issue 3m shares of "new" stock?
Lets say every warrant got exercised yesterday, would MHR get the cash corresponding to $8.50 x the actual shares outstanding, or $8.50 x the actual shares outstanding + $8.50 x the short position? I really don't know.
Someone knowledgeable about the details of exactly how shorting works would know, but that's not me. |
