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Non-Tech : Convertible Bonds -- Ignore unavailable to you. Want to Upgrade?

To: aknahow who wrote (7)	9/5/2002 10:25:14 PM
From: Rocky9	Respond to of 83

"Have been wondering if the risk/reward of owning a convertible bond in a biotech or high risk low asset company really are any different from owning the common." <<high risk low asset>> That's what I am trying to avoid. I agree that a convert in the situation that you have described is not much different than the common. But if the common has real assets, I think that it is a different situation. The assets can be cash, marketable securities, existing products that have market value, royalty payments that have market value, or some combination of those things. In the case of TERN, it has more than enough cash to pay off the debt, plus a promising technology that looks like will have widespread use in the next cable upgrade. In the case of SFE, it has cash, marketable securities, and non-marketable securities. The cash and marketable securities greatly exceed the face amount of the debt. In the case of SEPR, it has cash, significant sales of an existing product, a royalty stream, and research (IP) that has some value. Even if all the research falls, the other assets should be enough to return the current value of the converts. In the case of CPN, it is much more complicated since it has significant senior debt, but it is making money and has cash flow. It has to convince its creditors (and investors) that it will have continuing cash flow. Its convert also has a early put provision ("poison put") that could bring the company down (or at least dilute the common shareholders to the point of almost nothing). Many of the biotech stocks that have issued converts don't have any meaningful sales or assets other than their IP. For them, the ability to pay off the debt generally depends on success of their research or at least sufficient success to borrow later to refinance the debt.