Paul, you state: " In practice, the earliest one would
expect a conversion is probably mid-February. It is during this period that many 'fear' a
Castle Creek shorting blitz. Some on this thread and Yahoo have implied that Castle
Creek benefits from shorting the stock down before that time. This is nonsense."
The way I see it is slightly different, if I own those convertible, I can start and do some shorting "against the block" (the convertible I hold) right now. I continue to get my 6% on the convertible and have made an additional 30% on my money, and if I short against my "whole block", I keep getting 6% but also get to use the money for other purpose (I am getting paid when I short, since I deposit the convertible as a collateral for my short). Now, if the stock roars, I don't really care, I will deliver stock against the conversion at $6.03. If the stock drops, I can chose to cover and pocket the shorting profits. If the stock start to drop under $6.03 (for instance due to the failure of getting a "material order" by January 27, 1999), I am in fat city, since now, I own a floorless which I have shorted at $8, and I can engage in death spiral exercise. Thus the assumption that shorting will not start until mid February, might be erroneous.
I would assume that the owners of the debenture, being relatively close to management, must have some inkling as to the likelihood of the "material order" materializing, before the rest of the public, and thus could better time the actual shorting, and use rallies as in the last few days to do that at a high price and without too much influence on the stock.
The only risk they face, is losing the potential appreciation of VLNC in the event it does meets it goal and the stock rockets as some on this thread believe. All I can say is, quite possible, but faced with the certainty of a profit of 30% now and future interest of 6% on their investments, without any of that money now being at risk (they got paid back when they shorted, thus they get from here on 6% on no invested money, or an infinite interest rate), they could very well decide that two birds in the hands are preferred to one on the tree.
Zeev |
