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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: mst2000 who wrote (912)	8/29/1999 11:15:00 AM
From: Larry Brubaker	Read Replies (1) \| Respond to of 1438

mst2000, you show a lack of understanding of the mechanics of how floorless issues work. The investor in the floorless does not "damage" its investment if the stock price goes down. They profit from it. Presuming they hedge against their covertible by shorting at a price above the conversion ceiling (which is the standard tactic). Once they have established the hedge, they have locked in a minimum profit, taken their money off the table, but continue to earn interest on their preferred shares. The investor incurs 0 risk by shorting at a price above the conversion ceiling, because the most they will have to pay to convert is the ceiling. This hedging is why Zeev suggested there will be a ceiling on the stock price. Hedging is not manipulation. In fact, hedging transactions are usually specifically permitted in the terms of the deal. Once the hedge is established and a minimum profit is locked in, further profits are earned no matter which direction the stock price goes. If it goes down, the value of the hedge increases. If it goes up, there are usually additional warrants that can be purchased at a fixed price. Not bad to be in a position where one can't lose. ASTN's deal provides some breathing room because of the delay before the floorless provisions take effect. If by that time, VWAP has turned into a flop and nothing else is making money for them, I would not want to be caught holding the stock. In fact, I will be looking at it as a short candidate (I've traded it long several times). The simple fact is floorless issues are a financing of last resort. No company resorts to floorless unless they have no other alternative, because of the potential for massive dilution it creates.