Floorless Preferred Stock/Debenture Message Board

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Strategies & Market Trends : Floorless Preferred Stock/Debenture

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To: George Dawson who wrote (183)	11/26/1998 8:51:00 AM
From: Zeev Hed	Read Replies (2) of 1438

George, I do not suggest at all fleeing a company with fixed conversion rate debentures. It is true that when the price of the stock goes above the conversion rate, it may be beneficial to short against the block and keep collecting interest with no funds at risk (by the debenture holder). But that does not necessarily means that the stock will go below the conversion. There is no mechanism of a death spiral with a fixed conversion. As an investor, you may want to buy convertible debt (at par) and short anywhere above the conversion price (assuming the underlying equity gets there) and then simply use the funds and roll them into another convertible instrument. The risk is a default event if you did not short above the conversion price. Zeev

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