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Gold/Mining/Energy : CPN: Calpine Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Clement who wrote (223)	12/20/2001 11:05:16 AM
From: kodiak_bull	Read Replies (3) \| Respond to of 555

Clement: I have a question about your summary. "- For the bond holders, if Calpine hits $18.07 that's a minimum return of 23% with downside protection which is pretty good especially in this market." If the bondholder pays $1 billion for this issue he gets two things: a 4% coupon bond and the right to convert at $18.07 per share, that is, pay $18.07 to buy one share of CPN. (Yes, there are other features, but those are the big ones.) So if the bondholder converts, he pays (in principal) $18.07 per share, which is 23% above where the stock trades today. That is, he has the right but not the obligation to pay $18.07 per share. I don't see how paying 23% above today's price amounts to a minimum return of anything. At the point the bondholder converts, he pays $1 billion in his current investment, gives up his right to 4% interest, and swims in the sea with all the other CPN investors. Except for whatever 4% return he's received during his holding period, he's got no "minimum return." Let's say CPN rises to $18.50 and our (former) bondholder bails. His return is $0.43 ($18.50 - 18.07 convert price), or 2.4%, not 23% plus 2.4%. Am I missing something here? TIA, Kb