The facts are that the initial bond offering was $125 million and the shorting and stock decline started then, from the mid-$8 range to mid-$6 range on just the initial orders. Hedge funds short the stock before they buy the bonds, they don't buy the bonds to make money going long on a stock. I think once they piled in they saw they could move a small cap stock down easily and kept the selling pressure up. As for you observations about never seeing prices drop after a convert issue, the fact is the pre-offer shorting almost always drops the price by 5-10%. When this one fell by 25% it was a clear sign that the buyers were not friendly.
I agree with your assessment. The pension fund problems and environmental costs have been known for a long time. The selling started right after the convertible debentures were announced in mid-December. The stock immediately dropped from $8.45 t0 $6.66 in just two trading days, went sideways until January 11, then began to drift lower until earnings and then really tanked.
The key for longs is the 5% holders. Watch for Schedule 13D filings over the next couple of weeks for evidence of recent changes in holdings. I follow Gabelli (Gamco) closely because I consider them to be astute investors. If they are hanging with GY, I expect they may buy more to take advantage of the price drop and punish the shorts. At any rate, it looks like the stock is poised to rebound in the near term. IMO
I should clarify my last post. The convertible debenture issue got the selling started. However, the recent double whammy of Obama's proposed space budget cuts and the estimated $42 million retirement benefit expense in FY 2010 (disclosed in the 10-K) caused the stock to really tank. This sharp price drop emboldened the shorts to aggressively jump on the trade and the decline fed on itself.
Not so fast. The Obama budget cuts just won't fly when Congress gets involved in preserving industry and jobs. And the possible pension costs are non-cash and will likely self-correct over time as the plan's investment returns improve.