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Technology Stocks : Covad Communications - COVD -- Ignore unavailable to you. Want to Upgrade?

To: Jane4IceCream who wrote (2676)	11/30/2000 8:28:20 PM
From: Larry Livingston	Read Replies (3) \| Respond to of 10485

Well it took a bit of looking but it seems that at least 500 million of COVAD's financing is convertible at 17.50. As far as I can tell this is not a totally toxic financing in that there seems to be a fixed price at which it converts (if it turns out that there is a floating conversion rate that would be very bad, but without examining the documents there is no way to know for sure), nevertheless I would not be surprised if the debt holders shorted the stock all the way down which would account for the high short interest. Why would they do so? Because they would have nothing to lose. Once they're short they don't care how the debt trades. Essentially they're short from 17.50. They're protected on the upside because they've basically got a call at 17.50. They just sit there capturing their yield. The moment there is a default or they want to get out they can convert and cover their shorts and get out whole. While this type of debt may initially have been very bearish and should have been a warning to all when it was issued, I do see a possible bullish aspect to this. If it looks like COVAD can survive, these shorts may decide to cover and lock in their short gains and keep their debt and ride the conversion to the upside. I'm no expert on this and frankly have not been able uncover much. All the filings on Free Edgar seem old. For the moment I'm not going to take a position until I can discover more. Below is a yahoo excerpt and link as well as a link to a Cramer article on Toxic Convertibles. I think it's on the free site so it's available. from Yahoo finance: biz.yahoo.com Covad Communications Announces 6% Convertible Senior Notes Due 2005 SANTA CLARA, Calif.--(BUSINESS WIRE)--Sept. 20, 2000--Covad Communications (Nasdaq:COVD - news), the nation's leading broadband services provider utilizing DSL (digital subscriber line) technology, announced today that it has agreed to sell $500 million of 6% Convertible Senior Notes due 2005 with a conversion price of $17.775 per share. The amount of Notes issued may be increased by $75 million upon exercise of an over-allotment option. Covad Communications intends to use the net proceeds of the offering for capital expenditures to finance network expansion. Here is the Cramer link: thestreet.com thestreet.com Good to luck to all. I am impressed with everyone's conviction.