Friday, December 15, 2000 7:09:36 PM
Smouch let me lay the basics out for financing of certain OTC and even NASDAQ stocks.
The market down and in a correction expect convertible debentures to happen. Now these are the deadliest financing packages that exist because a these are long-term debt instruments that are not secured by collateral but instead can be converted into common stock at a specified price or terms on pricing.
These type of financing packages are by Loan Sharks.
The Anatomy of a Convertible Debenture:
Requirements:
1. Off shore Account to short
2. Escrow Account to short against
3. Terms with limited anti-dilution if any at all
4. Discount on shares and I mean large discounts like .80-.99%
5. Extremely Flexible conversion time frames
6. Promoter (The Pumper)to get the price up so the shorting can start from the off shore.
7. A due date of 3 to 5 years mostly.
8. Penalty for repayment
9. Interest Rate for the money loaned
10. Flexible Downdraft warrants or options.
This is a shareholder's worst nightmare. It also shows the company is so desperate that they will give away the company for pennies on the dollar. This not nothing at all like a private placement.
If you read this article on dimgroup you will understand the basics entitled Convertible Debenture & Stock Prices ...
http://www.dimgroup.com/articles/04.html
The key to the whole article is Convertible Debentures are structure so a downward movement in the Stock Price is totally advantageous for the Debenture holder. Also a debenture holder is a creditor of the company in contrast to a shareholder who is a proprietor of a company. Therefore debenture holders rank higher than shareholders in the line for liquidation proceeds.
But the stock is placed in escrow and thus an off shore account can short against the escrow. Simply, the holders of these debentures sell the shares of the company short, helping drive down the price so they can convert their debentures into more shares. Another words say they got the debenture at 75% or 80% the bid over a 5 day period prior to conversion. Well it would be in the debenture's best interest to short the stock to unbelievable lows so they could get more shares.
One example is say a stock is trading @ $1.00 bid and the company enters into a convertible debenture with a 75% of bid term. That means for the $1,000,000 they are entitled to 1,333,333 shares placed into escrow. they could short the short and .65624 and apply the 75% rule the debenture is .50 conversion thus they would be entitled to 2,000,000 shares. So the esculation grows in the debenture holders favor and they do not even have the shares yet. Now they have 2M to short against. At a 75% of .25 the debenture holder is entitled to 4M shares they can short against.
If there is no specified price the debenture is basically floorless and the max dilution is normally 20% of the outstanding. Bottomline is the stock price is going to go south.
Now you must remeber the stock is collateral while the $ principal of the debenture is owed back to the debenture holder until the debenture is paid off or converted to settle the principal.
Hope this makes sense to you but Zevhead is far more knowledgeable than I. If you really want more then go to Google and search on the term "Convertible Debenture" and read some of the terms. You will discover these OTC loan Sharks have a great businees ...
Gary
The market down and in a correction expect convertible debentures to happen. Now these are the deadliest financing packages that exist because a these are long-term debt instruments that are not secured by collateral but instead can be converted into common stock at a specified price or terms on pricing.
These type of financing packages are by Loan Sharks.
The Anatomy of a Convertible Debenture:
Requirements:
1. Off shore Account to short
2. Escrow Account to short against
3. Terms with limited anti-dilution if any at all
4. Discount on shares and I mean large discounts like .80-.99%
5. Extremely Flexible conversion time frames
6. Promoter (The Pumper)to get the price up so the shorting can start from the off shore.
7. A due date of 3 to 5 years mostly.
8. Penalty for repayment
9. Interest Rate for the money loaned
10. Flexible Downdraft warrants or options.
This is a shareholder's worst nightmare. It also shows the company is so desperate that they will give away the company for pennies on the dollar. This not nothing at all like a private placement.
If you read this article on dimgroup you will understand the basics entitled Convertible Debenture & Stock Prices ...
http://www.dimgroup.com/articles/04.html
The key to the whole article is Convertible Debentures are structure so a downward movement in the Stock Price is totally advantageous for the Debenture holder. Also a debenture holder is a creditor of the company in contrast to a shareholder who is a proprietor of a company. Therefore debenture holders rank higher than shareholders in the line for liquidation proceeds.
But the stock is placed in escrow and thus an off shore account can short against the escrow. Simply, the holders of these debentures sell the shares of the company short, helping drive down the price so they can convert their debentures into more shares. Another words say they got the debenture at 75% or 80% the bid over a 5 day period prior to conversion. Well it would be in the debenture's best interest to short the stock to unbelievable lows so they could get more shares.
One example is say a stock is trading @ $1.00 bid and the company enters into a convertible debenture with a 75% of bid term. That means for the $1,000,000 they are entitled to 1,333,333 shares placed into escrow. they could short the short and .65624 and apply the 75% rule the debenture is .50 conversion thus they would be entitled to 2,000,000 shares. So the esculation grows in the debenture holders favor and they do not even have the shares yet. Now they have 2M to short against. At a 75% of .25 the debenture holder is entitled to 4M shares they can short against.
If there is no specified price the debenture is basically floorless and the max dilution is normally 20% of the outstanding. Bottomline is the stock price is going to go south.
Now you must remeber the stock is collateral while the $ principal of the debenture is owed back to the debenture holder until the debenture is paid off or converted to settle the principal.
Hope this makes sense to you but Zevhead is far more knowledgeable than I. If you really want more then go to Google and search on the term "Convertible Debenture" and read some of the terms. You will discover these OTC loan Sharks have a great businees ...
Gary :=) Gary Swancey
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