Roger's 1998 Short Picks Message Board

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Strategies & Market Trends : Roger's 1998 Short Picks

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To: Roger A. Babb who wrote (14300)	10/2/1998 10:54:00 PM
From: Roger A. Babb	Read Replies (5) of 18691

"equity credit lines" Equity credit lines are not credit lines at all and are seldom actual investments. They usually work something like this: 1. Company makes deal with "investment fund" to sell shares to the fund from time to time at 92% or so of the previous few days trading price. The company can choose the time to make the sale but must notify the fund in advance. 2. Guess what, the fund sells the shares a few days ahead of the "deal date" and that sale defines the deal price. 3. The fund delivers the shares from the company to cover its sale and gives 92% of the proceeds to the company. 4. The fund never really invested in the company and made 8% with absolutely no risk. 5. Existing stockholders are diluted and the price is driven down. 6. Company repeats the process as necessary to raise cash, stock price spirals down as it takes increasingly large share sales to raise the monthly cash needs. 7. Really gets nasty if the "fund" anticipates the company cash needs and shorts in advance. Just another variation of floorless convertibles.

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