To: jcox who wrote (5986 ) 12/14/1998 8:00:00 PM From: Zeev Hed Read Replies (2) | Respond to
jcox, I think that you do not understand how hedge funds like CC work. They are not looking at the "upside" potential of a stock, they are looking to maximize their return in the here and now. Let say that they have been shorting the recent rally (the short position, if memory serve increased by some 600,000 shares or so), and remember that their conversion ceiling (and now there is no longer a floorless issue, thus this conversion rate is constant) is about $6. Anytime they short above $6 they are quite happy, since they need not to cover that short at all, they got all the money they gave to VLNC and then some, and on top of that they get paid interest on money they no longer have committed. The only thing that can cause them sleepless nights is the potential for bankruptcy, but with a fully hedged position, even that would not worry them at all. Now that they are issuing another $7.5 MM convertible, if memory serves me at the same $6 per share, you could expect them to engage in additional shorting (hedging) of their position, an action which could hold the price down until they are finished. The good news, however, is that shorting would have only a temporary influence on the stock since declines below $6 is no longer a viable strategy when they have a fixed conversion rate.
