I think that offering is not dilutive and the market (I think) realizes it also (from last time). After having it pointed out to me by some very knowledgable and experienced investors on this board (last time), I came to the conclusion that this offering is not dilutive.
The repo lenders lend an amount based upon some haircut on the current value of the collateral. depending upon the term of the repo, they might adjust it weekly or monthly. 15% haircut would mean that NLY can only borrow 85% of mkt value of the MBS. The new bond issue will not make much difference in that.
Sid, cut the drama. Everybody here knows what obligations are involved with put contracts. The only issue here is that you communicated incorrectly when you said you are an nly shareholder. You are NOT an nly shareholder. You are currently only a POTENTIAL nly shareholder. You will become an ACTUAL nly shareholder if and only if the put contracts you wrote get exercised.
You have made and continue to make numerous errors both in predicting and in communicating and yet you can never acknowledge it. No wonder why you get on peoples' nerves.
Forgot to mention, Buy NLY now or at dip, because it will go WAY UP.
Just don't know where is the numbers 500M+100M coming from. Why not 1000M?
By the way, since the 27,964,200 extra shares won't be converted until 2015, the management's bonus should be the same until 2015.
Last 2 Public Offering of Convertible Senior Notes -- "after deducting underwriting discounts and estimated offering expenses, will be approximately" $484.8M+$96.75M=$581.55M Cash
Book value of NLY is supposed to increase $581.55M and the number of outstanding shares is supposed to be the same within 5 years. It will be 27,964,200 more shares after 5 years.
NLY will need to pay $600M*.04/2=$12M every 6 months for the next 5 years.
Interest payment usually count as expense and is tax deductible.
In the next 5 years, NLY get $581.55M free cash to play around and we share holders get at least 90%-$24M of the profit as dividend payout.
If nothing big goes wrong, we NLY share holders should get better dividend payout and a nice capital gain boost. After 5 years, 27,964,200 extra shares won't matter much to us current share holders. It does matter to 2015 share holders whose values will be diluted by 27,964,200 shares.
You need to re-read this quote.
The notes will be convertible at an initial conversion rate of 46.6070 shares of Common Stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $21.456 per share of Common Stock, subject to adjustment in certain circumstances.
"principles+(loss/gain)" is what you will get (for $600M principle you put out at year 2010) in 2015 depending on 2015 NLY share price.
If you understand the quote and understand "principles+(loss/gain)", then you should be able to figure out the table below.
2010 principle amount is $600M.
In order to find out the real deal, we need to fast forward to the future 2015.
Shares * price = principles+(loss or gain)
Interest on the notes will be paid semi-annually at a rate of 4% per year and the notes will mature on February 15, 2015 unless earlier repurchased or converted.
Conclusion, you get 4%/year paid semi-annually for principle $600M and get 27,964,200 shares of NLY in 2015.
If you look bad on NLY, then
Let's say I short NLY once per offerings
(5/6 shares in 17.1 and 1/6 shares in 18.1=17.27/share)
34,742,328-27,964,200=6,778,128 shares(shares borrowed from brokers)
My initial investment is ZERO.( For Math reason let's put one dollar here)
Fast forward to 2015
NLY = 12 capital gain = 6,778,128 * (17.27-12) = $35,720,734.56
ROI(return of investment)=$35,720,734.56/1/5 years=7,144,146.912=714414691.2%
I will need to cover the quarterly dividend dist.
Sid-I never suggested for a moment that you don't have a legal obligation to pay for the stock if you get assigned shares. I've been trading options since well before you went senile.
My objection is that you almost alway incorrectly describe what you are attempting to say. You could have said (while short 50 jan 2011 puts) that you are essentially long the PRICE RISK of roughly 2,000 share. [Delta of -.4 X 5000 shares]. But you are not long 50 contracts of the stock (whatever that means).
By the way, any firm you deal with has margin requirements that would have you hold cash against your short position. Again, I am just trying to bring your level of knowledge and communication to a level where you can be of some value to the board.
call it what you want, and i will call it by the legal obligation attached to the naked puts.
you are entitle to think that the liklihood of having shares put to you is 'very slim' but NON THE LESS it is a legal obligation to acquire the shares.
if you think i am too stupid to respons to, you certainly have the right not to reply, now don't you??? I understand about delta but that DOES NOT REMOVE THE LEGAL REQUIREMENT TO ACCEPT THE SHARES IF THEY ARE ASSIGNED TO A HOLDER OF A NAKED PUT.
I had 40 contracts last summer of the Jan 2011 $12.50 naked puts and close them for a nice profit, so you don't have to declude yourself into thinking that I don't know what I am doing........made over $ profit per share in just a few months on those.
Glad we agree that shorting puts is a good strategy, but to say there is no obligation attached to that type of endeavor is just plain incorrect. By the way, yes, that is about how much my put gained in value based on the delta you point out.
Common stock moved from $15.50 to about $17.50 and factoring in 2 or 3 month time frame I made a buck each.
Perhaps it would do you some good to take a legal class in contracts and you will then understand that THERE IS AN OBLIGATION (HOWEVER REMOTE) to accept the shares if they are assigned to you.
I believe it's time for dinner.
Sid-a quote from a great movie, THE HANGOVER. "You are too stupid to insult"
NO!!!!!!!!!!!!!!!!!! you are not LONG 50 contracts of this stock. YOU ARE ABSOLUTELY NOT RIGHT. I keep suggesting that you pick up a agood beginners book on options. I'm going to introduce to you a new term. DELTA. Delta is the amount in price an option will move for a $1 change in the underlying stock. Your 50 puts with a 15 strike in jan 2011 has a delta of -.43. That means (if all other factors such as vol) stay the same, if NLY moves lower by $1 then the price of the put will move up by 43 cents. Vol is an important factor as is remaining time.
But for you to continue to misstate constantly is stupid. Learn what you are talking about and then banter with the big boys on this board. But you are most certainly not LONG 50 CONTRACTS OF THIS STOCK.
And keep in mind, none of my comments should suggest to you that I don't like shorting put. I sold more today. I've made a lot of money in the last year doing so. Currently I am short more than 500 puts of various strikes. As high as 17 and as low as 14. I think the likelihood of getting put on any is pretty slim.
Sorry-- re the 4%, it is a tax item in the same sense as any of nly's funding costs: it reduces taxable income to nly, so reduces the amount of distributable income required under reit regulations. Don't forget, nly does not pay income taxes as long as it distributes "90%" (actually, this is not quite right, but works for us here) of its taxable income. The 4% reduces the amount nly will give you in dividends. But the 4% is on $600m, and we are looking at receiving dividends on $600m x 5.7 (leverage) x 2.35% (spread:my guess) less 4% on $600m which is more than the 4% on the 600m. I hope I am making sense here.
There is no tax impact on nly. Think about it this way: if in 2015 your convertible which you bought for $1,000 is worth $2,000 because of the increased number of shares you will receive, instead of a one-time capital gain of $1,000 in 2015, as an individual (tax-paying) you will account for the $1,000 gain over each of the five years at "dividend received" rates based on the "dividend" increase in the value of the convertible. So, roughly, if you, as an individual, buy the convertible and the convertible conversion rate goes down in 2011 by (for example sake) $1.00, you will pay taxes at your normal rate in 2011 on the $1.00. But you will not receive cash to pay the tax. So this is why this is oriented to a non-tax/current yield buyer.