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Biotech / Medical : Sepracor-Looks very promising
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To: Ed Ajootian who wrote (987)7/8/1998 10:28:00 PM
From: BMcV  Read Replies (1) of 10280
 
Thanks for your explanation of why the convertible might tend to hold the price around the conversion level. I seem to recall something from you about convertible holders shorting the stock to lock in gains on their bonds, but that must have from the first issue when there were gains worth locking in.

12% dilution at these levels would explain a lot of the hesitation we're experiencing here. On the other hand, John's point that a price of 50, say, probably wouldn't bring supply into the market, since the bondholders wouldn't sell and lose their 7% (plus making themselves vulnerable to a price decline). And the dilution really is there for anyone paying less than $47.50 -- let's hope we've left that price in the dust when the issue comes due! Otherwise we'll have to actually pay them off in cash!

Do convertibles trade differently above their conversion price? Does a different type of buyer come in then? Are the bonds tradable at all, or isn't this an offshore issue like the first? Above $47.50 are the bonds a better alternative for some buyers?

A lot of questions, I know. I'm just trying to understand the dynamics of how the converts fit into the market price. It certainly is striking that the price has stopped dead for two days (and bumped this ceiling at the last top) right at the conversion price, so I think you're onto something.

cheers
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