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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: XoFruitCake who wrote (80418)	6/28/2007 8:59:46 PM
From: ChanceIs	Read Replies (1) \| Respond to of 306849

>>>Company Has Issued $125 million of 9.75% Convertible Trust Preferred Securities<<< The other day I drew up and posted a list of 10 similarities between the merchant generation meltdown of 2002 and the current subprime meltdown. (Kind of like Woodrow Wilson and his 14 points, but I flatter myself.) I forgot to mention an 11th, the role of convertible bonds (or preferred). As a general rule (not always) corporations in trouble tend to issue convertible securities. It has the advantage of bearing a lower interest rate on the bond portion of the security and simultaneously the issuance of stock (through the embedded option) without the current stockholders (at least the lazy ones) not figuring out that they have been diluted. Those embedded options represent shares which....kind of...like...might be issued in the future. Not smoke and mirrors, but close. There is nothing wrong or illegal about convertible securities, but they are sophisticated and definitely out of the mainstream. An unfair characterization, but convertibles are not like footnote #937 on page 243 of Enron's annual report. For sure, you have to sweat and wear out more than a few pencils to fully comprehend the ramifications. So it is not the case that AHM's convertible issuance is a bad thing. However if I were long, my education in the school of hard knocks would have me up until 3AM figuring things out. If I didn't have the time, I would simply well at the open tomorrow. In a small way, it is an indictment of the sector. When the convertibles start to roll out, one might take the position that we are in the bottom of the sixth with 2 out.