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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (31)	8/9/1998 8:21:00 PM
From: drjoedoom	Read Replies (1) \| Respond to of 1438

Barbara -- << I pulled the S-3 filed 6/26/98 which describes HEC's series F convertibles >> You've confused the Series F Preferred, which is a floorless, with the "European convertible", which is not. My comment related to Zeev's reference to the European issue. << HEC does have the option of buying the convert back, but this is a standard clause, and it is not something one would expect them to do. After all, they would not enter into the deal if they did not need the money. So, while HEC does have the option of paying in cash, the question then would be, where does it come from? >> Well, I'm not sure that the option is so standard. If the stock is well under $5.00 per share and the holders of the Series F try to convert, I certainly would expect HEC to pay cash. (And if they had shorted millions of shares previously, what a short squeeze that would be!) My main point is that THE MERE THREAT OF A CASH BUYBACK SHOULD BE MORE THAN ADEQUATE DETERRENT AGAINST RAMPANT SHORT-SELLING BY THE "FLOORLESS BANDITS." Do they "need" the money? Well, needing the money and needing the money desperately are two different things. Any company is smart to maintain adequate working capital, and the company might issue equity, debt, or some hybrid to generate it. That doesn't mean they have no other ways to generate the cash if they urgently need it. Where would HEC get the money? Well, HEC is currently sitting on well over a hundred million in cash. Assuming they don't want to deplete that stash, they could do another financing issue. Do you think that a company with a market cap in the hundreds of millions of dollars would have serious trouble raising $15 MM? They could, of course, simply sell a piece of their assets. Last fall, they sold a 7% interest in certain drilling prospects for $35 MM. Maybe they could sell a few percent more. Better yet, they could do a rights offering to existing shareholders. If it could be established that the holders of the floorless had gotten seriously short, existing shareholders gladly put up $15 MM more. Maybe the same guy who paid > $1 MM for 300,000 shares a week ago (who you assume is some newly rich, lottery-lucky rube) could be convinced to put up a few million more. The possibilities are endless. Joe