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Technology Stocks : Coyote Network Systems (CYOE), Mixing It Up, IP and ATM
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To: TheLineMan who wrote (273)6/4/1999 1:48:00 AM
From: Q.  Read Replies (1) of 360
 
Another way to look at the preferred stock deal: the terms imply that JNC figures the company is so risky that its debt is worth less than 50 cents on a dollar. Here's how I figure this:

As a holder of preferred stock with a fixed conversion price, JNC is now fully at risk for the co. to go bad, much like a debt holder. How risky does JNC feel this is?

Consider that they now own preffered stock worth $6 M plus some warrants, and their net cost for this stock is $3 M ($7 M for the original purchase in 1998 less the $4 M recent redemption).

In other words, JNC has paid, net, only half of face value for the fixed-price convertible preferred.

Now think about somebody who buys debt at 50 cents on a dollar. What JNC has done is something like that, since preferred stock is like a junior form of debt. However, this preferred stock is convertible, which makes it more attractive than regular debt. So how much would debt from CYOE be worth, when you take into account risk? The assesment above says CYOE debt is worth less than 50 cents on a dollar.
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