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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: jack rand who wrote (5934)	11/14/1997 1:40:00 AM
From: S. maltophilia	Respond to of 13594

<<What I don't get is who anywhere in the world would buy 4% AOL 5 year paper (subordinated yet) on stock .....>> My guess is that it's clients of Capital Group/Research, AOL's largest holder----- Over 5% Stockholders: The Capital Group Companies, Inc. and Capital Research and Management Company(2)(3).......... 12,833,220 13.7% 333 South Hope Street Los Angeles, California 90071 Putnam Investments, Inc.(2)(4)......................... 7,727,146 8.3% One Post Office Square Boston, Massachusetts 02109 Or, perhaps some ended up in a Putnam fund. If anyone has a stake in giving this turkey a good deal, it's one of these.

To: jack rand who wrote (5934)	11/14/1997 1:47:00 AM
From: Steve Robinett	Respond to of 13594

Jack, Several thoughts about your post. Nowadays, good accounting practice does include all potential shares from employee options, convertibles, etc. Second, the dilution from this debenture would be about 3.3%, so we know the Oppenheimer guy's calculator works. At the time of the debenture's announcement, AOL was trading at 74 & change. It immediately dropped to 73 in afterhours. The dollar value per share of the dilution was about 2-3/8. In other words, it seems to me the dilution got discounted immediately, which tells us that though his calculator was working, his brain was not. The stock opened the next day and kept going down, in fact, was already in a downtrend at the time of the news. Anything more than a couple of points represents to my mind people worrying about something other than dilution. Who would buy the converts? Rather than thinking of it as comparable to treasuries or corporate bonds, think of it as AOL with a 4% dividend. At the time the deal was put together, they could point to a rising chart and suggest AOL would be to 104 in no time, plus they get 4% while they wait. Also selling a dollar denominated asset into an area with recently devalued currency might make it look attractive. Not to me or you but to someone. Afterall, someone bought this crap all the way up to $90/shr. BTW, I don't think I've ever seen convertible debt that wasn't subordinated. Senior debt is almost always just straight debt. The only think it converts into is cash at maturity. Best, Steve

To: jack rand who wrote (5934)	11/14/1997 9:09:00 AM
From: J.S.	Respond to of 13594

It makes you wonder. The point really is that you only have to worry about dilution if the stock goes up past 104. i.e. it goes up past 104 and then down by 3%. That puts the stock at 100 not at at 65. Your assessment of this analyst's intelligence was overly generous, IMO. Joe

To: jack rand who wrote (5934)	11/14/1997 9:15:00 AM
From: J.S.	Read Replies (2) \| Respond to of 13594

"What I don't get is who anywhere in the world would buy 4% AOL 5 year paper (subordinated yet) on stock at 40% discount to strike; when 5 year T-Notes yield 5.65% and.." This is why I think this was really a swap of current debt for long term debt. Remember what keeps AOL from being completely bankrupt is "deferred subscriber acquisition costs" -- the phoney baloney accounting gimmicks that they are famous for. This does not pay the bills. Their creditors are a credulous lot. I can imagine they would be happy to take these notes (with the implied long term option) in return for what AOL owes them. It may not have been done directly, but AOL's bankers have arranged it so that the net effect was exactly this. joe