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Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: Teddy who wrote (4663)	3/3/2000 3:05:00 PM
From: RobertSheldon	Respond to of 15615

When bean counters think a company may be taken over by another company the following sometimes occurs: 1) a review of the acquiring firm is undertaken. 2) from the financial review they calculate the probability of the deal going through. 3) if it is determined that the firm would be at least as strong (financial rating) as it was before the acquisition, then they take a closer look at the target. 4) if the target's debt is trading at a discount to the call provision (a call provision protects the existing bond holder from a person taking the bonds away at depressed prices) they figure out which issue could earn the highest return should the acquisition go through. 5) once the most lucrative piece of debt is identified, the rate of potential return is compared to the probability of the deal going through. 6) if the ratio of 5 is favorable, they then go out and buy the debt piece they are interested in. 7) when demand for a piece of debt increases, the market maker will raise the price of the issue. 8) as the price rises, the yield on the bond goes down. With GBLX we saw many of their issues closing in on PAR over the past few weeks. This implies the folks that are tracking the risk of receiving a portion of GBLX's cash flow (some goes to the coupons on the issues) have for some reason become much more comfortable with the companies prospects of actually making good on the bond payment and principal. Folks who invest in the equity side of a company generally do not pay this much attention to the finances. After all they are not expecting payment every six months (generally) as the debt holders are. This is why we often see a move in the debt securities before a move in the equity when a large business combination is in the works. Yet another reason I am wooozy over this whole dance GBLX is meandering through.