Tom: I am a little surprised by P/W (Payne Weber?) statement:
"First, the rumor of a bottomless convertible
preferred issue is not true and there is no such animal."
Maybe they meant to say it is not "a bottomless" there are three such floorless instruments in a row, the $35 MM "participation, the $15 MM preferred and the $85 MM 1998 convertible debenture. These issue might not be "bottomless" but they are definitely "floorless".
Of course there is no such animal as a bottomless financial instrument, I do not think that anyone implied that these instruments are bottomless. I would be surprised if P/W will state that there are no floorless convertible instruments. They are quite careful not to be caught lying, their use of the word "bottomless" in lieu of "floorless" could be nothing more that a flawed exercise at a white lie. They create the now well know "plausible deniability" case, we never said there no floorless instruments, we said there are no such things as "bottomless" instruments.
To clear the air and clarify the definition, a floorless financial instrument is a security that can be converted into common stock at a conversion rate which is "floorless", namely the conversion rate is determined by the stock price at a future date, some time this future date is related to the time of conversion, sometime it is not.
There is no question that these three instruments have floorless features.
There is rarely a case when such instruments are issued where the existing holders of the common stock do not bear the brunt of the beneficial treatment a special class of securities holders is offered.
Since it is advantageous for the holders of such floorless instruments that the stock goes down, strangely enough, the stock does go down. I have given many examples where that has happened, I wonder if someone knows of a unique case when the presence of a floorless was not followed by at least halving the price of the common from the price of the issue date of such floorless instruments. These might be interesting case history to study to help differentiate between "good floorless" and "bad floorless". So far, the only floorless I have met was a bad one.
Zeev |
