Hola, mi amigo, Pancho!!!
Esta dia, The New York Times has an article on our favorite type of financing, the floorless "toxic" convertible.
nytimes.com
below is the aol only link:
aol://4344:2334.fi05175.24969525.579834020
a snippet:
The transactions work this way: The company sells the investor a new issue of convertible-preferred shares -- shares that have priority claims on dividends and assets and can be converted to common shares -- through a private placement.
The placement includes a 1990s twist: Instead of the more usual practice of fixing ahead of time how many common shares would be received, these preferred shares are convertible at a floating ratio based on the stock price.
The lower the stock price happens to be when the investor decides to convert, the more shares the investor would get. On top of that, the deals may include a discount of up to 30 percent, giving the converting investor even more common stock in exchange for the preferred.
Firms that invest in such financings say they are a boon to innovative but cash-short companies. "This is a huge industry involving many of the biggest investment banks on Wall Street," said Mitchell Kaye, a principal of Brown Simpson Asset Management in New York. He estimated that more than 1,000 deals worth several billion dollars will be concluded this year.
Even so, some people on Wall Street call such deals "junk equity." (Issues of debt securities with similar conversion features are also growing more common, and pose similar risks.)
Robbins of Red Chip Review calls some of them "toxic convertibles" because they offer an immense incentive for unscrupulous investors to drive down the share price by selling the stock short. Generally, when a large number of short positions is taken in a thinly traded stock, the price falls. |
