I've been lurking on this thread and have to say it's excellent. You all make me realize how much I don't yet know. And how easy it is to misinterpret information sometimes.
I went to the site linked - members.aol.com - and haven't yet absorbed all the info that is there. So I don't feel that I can yet ask an intelligent question on most of what is there but do have a couple of quick ones that stood out, if this thread doesn't mind.
The convertible owner is also often given 'warrants' as a sweetener for the deal. The warrant is basically a free lottery ticket that the holder can cash in someday if the stock goes up above its 'exercise price', which is typically well above the current market price.
In doing some research just yesterday on convertible debentures I found what I had thought was a site with constructive & factual info. This site referred to warrants in conjunction with convertible debentures as being an anti-dilutive provision for the debenture holder(s). In info at the site linked above, it's referred to as a "sweetener." I hope this question isn't too broad - or dumb - but how can one really tell which it is? Is it possible for the warrants to be actually a smart provision for the holder to have or is it, in practice, ONLY a "sweetener?" If the debenture is a floorless convertible, does that assure the warrants are indeed only a sweetener?
Another factor that limits the dilution is a Nasdaq rule that a co. must seek shareholder approval before diluting the stock by more than 20%.
Can I assume this means an actual NASD-listed stock? And excludes the bb stocks? If it does exclude the bb stocks, wish it didn't.
Sometime around the date the SEC declares the registration effective, the fund will begin converting convertibles into common. The fund will do this in chunks, called 'tranches'. They will sell the common right away. Or, if the fund is permitted to sell the common shares short, they sell the common several days before they get it by converting --- they do this in order to further reduce their risk. At one time, funds could sell shares short before the registration was deemed effective, but a court case back in 1997 (against Genesee, or GFL, which is an offshore fund) ruled that this practice was not allowable, so perhaps it has stopped, although it would not surprise me if it goes on anyway.
It says "if the fund is permitted to sell the common shares short..." What language / terminology should be looked for to determine whether it is permitted or not - definitively? And even if it's not permitted, what's to stop the debenture holder from getting someone else to short it? Assuming that can be done, how would a shareholder determine that and what could be done about it?
TIA! |
