Thermal Control Technologies Corp TCT (was Redux Energy) Message Board

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Gold/Mining/Energy : Thermal Control Technologies Corp TCT (was Redux Energy)

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To: mike wood who wrote (251)	1/21/1998 1:20:00 PM
From: Saverio	Read Replies (3) of 1208

Mike: not exactly right. The price at which the db's trade is partially depending on the price at which the stock trades, because of the fact that the db's are convertible when the holder decides. Case 1: assume that the stock trade at $1.70 you bid to buy an 8% db with face value of $1000 and you offer a bid of 115 per cent (15% premium). Assume somebody takes your bid. You will pay $1150 + adjustment on accrued interest + commission. You may now sit on your $1000 db, collect 8% interest per year as long as you hold the debenture (until 2001) and whenever you want, you may convert your db into 650 shares at $1.60 (instant paper profit of $0.10). The 115 is the value the market assigns to the db. Case 2: we are the next day; now assume the stock trades at $2.00 if everything else is the same, nobody will accept a bid at 115 when the conversion would give you an instant paper profit of $0.40 (instead of $0.10 the previous day). The above demonstrates that the value of the db is partially dependent on the value of the stock it can be converted to (not the contrary); the other factors would be the interest (8%) of the db versus the prevailing interest rates, as well as the time left until maturity (it gives more time to the stock to increase in price), and probably also the strength of the company (it is a risk free deal as long as the company does not go bankrupt: even if the stock goes down below $1.60, at maturity you still have your original capital and your 8% per year). These TCT db's become convertible on January 31; that may temporarily weaken the price into February (in anticipation that some db holders may sell for an instant flip) as I explained in one of my earlier notes (although the price currently seems to be strengthening). Clear as mud? Saverio

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