Peter, they don't have any shares to sell until they convert. Prior to converting, they have to borrow shares like any other short. In some cases, they get warrants along with the notes and can convert these and sell long rather than short. Were I doing it, I would build a short position (borrowing shares) first, then convert my warrants and dump those shares on the market (no upticks to worry about). That would (hopefully) kick off a nice downtrend into which I would start feeding shares I'd get (at a discount to market, BTW) by converting some notes, making a profit on each conversion and sale due to the discount. Ideally, I'd still have lots of notes left to convert when the stock got down as far as it could reasonably be expected to go ($1? Who knows?). When I convert the rest, I control the company and maybe even make more money from a turnaround and recovery in the stock. Of course, I would never do this as I am an ethical person.
BTW, one of the other responses to your query said the noteholders could deposit the notes as margin for the short sales. As the notes are usually not registered, I do not think this would be possible. Also, I don't think they could really accomplish their objective the way others described (in the example, shorting 1 mil shares at $10 all at once to get the funds back that they put into the $10 mil of notes). Assuming the stock held up to that new supply so they could raise the $10 mil, once they were absorbed by the market, what is going to create further downward pressure?
Regards,
Bob |
