Wednesday, December 20, 2000 1:32:46 PM
Birdofprey, concerning Convertible Debentures.
what would the impact be of Convertible preferred stock being structured like these convertible debentures are?
Especially if they are floorless?
Birdofprey, In all my reading of filings I have never seen where the insiders of a company write their Prefer shares like a convertible debenture till yesterday. Most of the time the preferred is convertible at a ratio say 20 to 1 and have a conversion date. That means on that target date the preferred automatically converts to the ratio. So a 20 to 1 convert means they get 20 shares of common for every preferred.
A Floorless is there is no cap or maximum of the OS. Another words a cap would be up to say 20% of the OS or some other limitation wording that limits the amount of stock that can be issued on a fall in price and with out such a clause it is "Floorless" I do believe. Nothing to stop it or put the conversion in check.
However, take AVBC’s first 10K for reference for the floorless part of that question. I was blown away when I just read that the preferred A, B, & C stock and the financing all had an "Adjustable Conversion Clause!" (ACC) Never seen that before on Preferred Stock, because to me that means the preferred stock is a "Floorless Convertible Preferred" same as and no different than a "Floorless Convertible Debenture." I saw no maximum cap on the conversion of anything.
You should already know what happens to a stock with a "Floorless Convertible Debenture" I hope. Debenture holders MIMs or MMs does not matter, the price is going down.
do these conv. deb. have a long term strangle hold on the stock? for example, after the CD, XYZ announces funding and each qtr there is an increase of 100% in sales (which would be outstanding for the stock) the stock would still stay the same??? basically, no matter what XYZ does in 2001, their stock price is screwed because of these debs????
From my experience, once a convertible anything that is floorless is done it is in the convetible holder's best interest for the price to fall. By either shorting or bashing or whatever tactic they need to complish getting the price down. Once down they can convert for Max. amount of shares.
Typically after that then comes a P&D because they are ready to scalp the market with the surplus of shares that was left over from covering any possible short position.
You have to understand desperate companies do Convertible Debentures (CDs), which are notorious for ACCs or another words "no-risk short cover clause", which is any rhetoric that states basically, "the financing dollars (Loan) is divided by the share price to arrive at the number of adjustable common shares to cover the loan" or any other possible scenario of that writ. Most are obvious with such writings as "80% (the discount)of the lowest share price in a X interval of days prior to the conversion."
That means the stock price being lower is advantageous for the Prefer holder because they can get more stock of the conversion. Remember, in a Convertible Debenture the debenture holder wants the loaned money to be protected from loss so an ACC is placed into the terms to protect the debenture holder. Thus the shareholders just got nailed.
Example: $100,000.00 at $1.00 and the price is trading $1.25 is discounted. Now if they have an ACC then at whatever the price of the stock is that is the basis for the amount of shares that it takes to cover the financing dollars. If the stock price is $0.10 and the financing dollars is $100,000.00 the debenture holder can gets 1M shares if conversion is declared. So typically the debenture holder can short the stock down with the 100,000 they got and they have all that money and then they get 900K additional shares to boot. Plus the company still owes them the money. Now if it takes 500K to short they still end up with all the shorting funds and 500K to cover and a surplus of 400K plus they are owed the loan money with whatever interest in the terms.
This means that no matter what the fundamentals are, the stock price can be basically controlled by the adjustable conversion clause and holders of the convertibles. Refer back to my other composition of the convertible debenture.
What comes next is the old P&D where it is now in the best interest of the debenture holder for the stock to get volume and rise. Thus they can now sell whatever stock is surplused out of covering the short position. Bashers typically work hard when trying to get a price down. Now you can see why. These same bashers will go positive or silent once the debenture is done and the selling of shares is the target.
But again I have never seen a preferred stock to an insider with an ACC on it till I just read the 10K of AVBC. Now that is not say anything is happening but in most stocks where CDs exist the price always tanks and the MIM/MMs love it. They will make a fortune playing the stock and they will have plenty of inventory on the surplus of the conversion.
But all of this can happen and I am not saying it will but typically CDs go to .10 ... I just rather not gamble on a stock that has Adjustment Conversion Clauses on anything. This typically can be applied as an possible P&D/S&D scenario. The debenture holders can play it up and play it down without any risk.
Hope this answers your question but this is my opinion and I could be wrong! May want to ask Zevhead. He taught me a lot of what I know.
Gary
what would the impact be of Convertible preferred stock being structured like these convertible debentures are?
Especially if they are floorless?
Birdofprey, In all my reading of filings I have never seen where the insiders of a company write their Prefer shares like a convertible debenture till yesterday. Most of the time the preferred is convertible at a ratio say 20 to 1 and have a conversion date. That means on that target date the preferred automatically converts to the ratio. So a 20 to 1 convert means they get 20 shares of common for every preferred.
A Floorless is there is no cap or maximum of the OS. Another words a cap would be up to say 20% of the OS or some other limitation wording that limits the amount of stock that can be issued on a fall in price and with out such a clause it is "Floorless" I do believe. Nothing to stop it or put the conversion in check.
However, take AVBC’s first 10K for reference for the floorless part of that question. I was blown away when I just read that the preferred A, B, & C stock and the financing all had an "Adjustable Conversion Clause!" (ACC) Never seen that before on Preferred Stock, because to me that means the preferred stock is a "Floorless Convertible Preferred" same as and no different than a "Floorless Convertible Debenture." I saw no maximum cap on the conversion of anything.
You should already know what happens to a stock with a "Floorless Convertible Debenture" I hope. Debenture holders MIMs or MMs does not matter, the price is going down.
do these conv. deb. have a long term strangle hold on the stock? for example, after the CD, XYZ announces funding and each qtr there is an increase of 100% in sales (which would be outstanding for the stock) the stock would still stay the same??? basically, no matter what XYZ does in 2001, their stock price is screwed because of these debs????
From my experience, once a convertible anything that is floorless is done it is in the convetible holder's best interest for the price to fall. By either shorting or bashing or whatever tactic they need to complish getting the price down. Once down they can convert for Max. amount of shares.
Typically after that then comes a P&D because they are ready to scalp the market with the surplus of shares that was left over from covering any possible short position.
You have to understand desperate companies do Convertible Debentures (CDs), which are notorious for ACCs or another words "no-risk short cover clause", which is any rhetoric that states basically, "the financing dollars (Loan) is divided by the share price to arrive at the number of adjustable common shares to cover the loan" or any other possible scenario of that writ. Most are obvious with such writings as "80% (the discount)of the lowest share price in a X interval of days prior to the conversion."
That means the stock price being lower is advantageous for the Prefer holder because they can get more stock of the conversion. Remember, in a Convertible Debenture the debenture holder wants the loaned money to be protected from loss so an ACC is placed into the terms to protect the debenture holder. Thus the shareholders just got nailed.
Example: $100,000.00 at $1.00 and the price is trading $1.25 is discounted. Now if they have an ACC then at whatever the price of the stock is that is the basis for the amount of shares that it takes to cover the financing dollars. If the stock price is $0.10 and the financing dollars is $100,000.00 the debenture holder can gets 1M shares if conversion is declared. So typically the debenture holder can short the stock down with the 100,000 they got and they have all that money and then they get 900K additional shares to boot. Plus the company still owes them the money. Now if it takes 500K to short they still end up with all the shorting funds and 500K to cover and a surplus of 400K plus they are owed the loan money with whatever interest in the terms.
This means that no matter what the fundamentals are, the stock price can be basically controlled by the adjustable conversion clause and holders of the convertibles. Refer back to my other composition of the convertible debenture.
What comes next is the old P&D where it is now in the best interest of the debenture holder for the stock to get volume and rise. Thus they can now sell whatever stock is surplused out of covering the short position. Bashers typically work hard when trying to get a price down. Now you can see why. These same bashers will go positive or silent once the debenture is done and the selling of shares is the target.
But again I have never seen a preferred stock to an insider with an ACC on it till I just read the 10K of AVBC. Now that is not say anything is happening but in most stocks where CDs exist the price always tanks and the MIM/MMs love it. They will make a fortune playing the stock and they will have plenty of inventory on the surplus of the conversion.
But all of this can happen and I am not saying it will but typically CDs go to .10 ... I just rather not gamble on a stock that has Adjustment Conversion Clauses on anything. This typically can be applied as an possible P&D/S&D scenario. The debenture holders can play it up and play it down without any risk.
Hope this answers your question but this is my opinion and I could be wrong! May want to ask Zevhead. He taught me a lot of what I know.
Gary :=) Gary Swancey
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