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Corrections Corporation of America Message Board

  • flipper_58 flipper_58 Apr 18, 2000 4:08 PM Flag

    What your Special Div. might be.

    PZn will be issuing a Payment in Kind (PIK)
    preferred with a 12% coupon instead of cash for their
    special dividend. Here's why this preferred won't be
    around long and those that fail to convert will pay a
    price. First PZN's Pref. A yields 20% so getting 12% is
    no bargin. The pref. will convert into common shares
    on 2 dates, the important issue to watch will be
    PZN's pref. A since the C will trade relative to it.


    THis looks to be set up very much like CMM's (A
    mortage REIT)taxable dividend. Here's CMM's explanation
    of their preferred F:
    ROCKVILLE, MD, September
    15, 1999 � (NYSE:CMM) � The board of directors of
    CRIIMI MAE Inc. yesterday, September 14, 1999, declared
    a dividend for common shareholders of record as of
    October 20, 1999. The dividend will be payable on
    November 5, 1999 in up to an aggregate of 1.61 million
    shares of a new series of $10 Face Value Series F
    Redeemable Cumulative Dividend Preferred Stock (the �Series
    F Dividend Preferred Stock�) (NYSE: CMM-PrF). The
    distribution is designed to satisfy the Company�s remaining
    federal income tax obligation for the 1998 tax
    year.

    Holders of record of each share of CRIIMI MAE common
    stock will be entitled to receive 3/100ths of a share
    of the new Series F Dividend Preferred Stock (i.e.,
    three shares of Series F Dividend Preferred Stock for
    every 100 shares of common stock held). Series F
    Dividend Preferred Stock will be issued in whole shares,
    with shareholders receiving cash from a transfer agent
    for their fractional share interests at a price equal
    to the average sales price of all aggregated
    fractional shares sold by the transfer agent, less
    transaction costs. The Series F Dividend Preferred Stock will
    be convertible into shares of common stock during
    two, 10-business day windows: the first commencing on
    November 15, 1999, and the second commencing on January
    21, 2000. Conversions will be based on the
    volume-weighted average of the sale prices of the common stock
    for the 10-trading days prior to the date converted,
    subject to a floor of 50% of the volume-weighted average
    of the sale prices of the common stock on November
    5, 1999. At the end of the second conversion period,
    February 4, 2000, all conversion rights of Series F
    Dividend Preferred stockholders will expire.

    The
    Series F Dividend Preferred Stock provides for cash
    dividends at an annual fixed rate of 12%. The first
    dividend will be paid no earlier than the end of the
    calendar quarter in which the Company�s anticipated plan
    of reorganization becomes effective, and no more
    than quarterly thereafter. Series F Dividend Preferred
    Stock is redeemable at the Company�s option after
    November 5, 2000 at a price of $10.00 per preferred share
    plus accrued dividends

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • If you notice the chart on the pref. F the common
      fall sharply after their last conversion date on
      Feb.3,2000. Those that did not convert took a 25%
      haircut.

      Now certainly this situation could work out
      differently, but if I was CFO I won't want this PIK hanging
      around. Giving us only 12% pretty much forces our
      hand.

      JMHO

      • 2 Replies to flipper_58
      • I need more explanation of what you are saying.
        If the common fell after the conversion date, didn't
        the shareholders who converted lose money? After all,
        they converted based on a higher average price, right?
        They got $10 worth of common per share of Pref. F, but
        at the higher common price that prevailed before the
        last conversion. Furthermore, the common was probably
        paying less than 12%. Why wouldn't the holders of Pref.
        F be better off holding the Pref. F, collecting 12%
        cash, and waiting until the final buy-back at par. At
        that point they can take their 12% dividends plus the
        $10 par value and buy common. Unless the common has
        shot back up, they will own more shares than by
        converting earlier.

      • post 12281"""If you notice the chart on the pref.
        F the PREFERRED fall sharply after their last
        conversion date on Feb.3,2000. Those that did not convert
        took a 25% haircut.""

        post 12289 "Of course
        Pref. stock has no maturity so par value is NOT as
        important as with a bond.""

        sorry, probably more
        errors.....but it's cocktail hour...cheers.

    • That assumes you have gains to match
      against it less $3000.

    • yes on all. Stock under $3 again. It's going to
      be a catch 22 again it seems. The lower the stock
      price the lower the rights exercise price and PIK
      conversion price and the more shares coming out. That's
      $350mm that will come for sale at ANY price...that's not
      comforting. iF the rights and the conversion are at $1.5 that
      explodes the number of new share to 233mm. What the
      earnings per share going to look like then?

      What's
      also humbling is WHC sells for an 8 P/E...THAT"S EIGHT
      time earnings. What is PZN worth if that is the case?
      If PZN makes $100mm next year by some wild chance,
      with 300mm shares out that's $.33/eps. At 8 times $.33
      that equals $2.65/shr.

      I really feel this stock
      is not a buy until under $2(at this time) and that
      is with the $1.20 spec. div. coming out.
      JMHO

    • Here's one way to look at it. IF you own 1,000
      shares of stock at a cost of $24 you have a $21,000
      loss, obviously. If your tax bracket is 33% that's a
      roughly $7,000 tax savings. PZN would have to go over $10
      in 31 days before the strategy would not work in
      your favor ($3+$7 from tax savings).

      I would
      wait until you have an idea of the record dates coming
      up and time your sale within 32 days of the closing
      of the rights offering OR 32 days BEFORE the first
      conversion window for the PIK pref..

      JMHO

    • Hate to be dense buttttt:

      It may be an
      expensive insurance policy, but the shareholders don't have
      much choice. Therefore, I suspect shareholder approval
      is a lock.

      Got the concurrency of the
      approval period and the rights offering closing
      together.

      Confused about your last sentence, "PL would never allow
      an over-subscription priv if the really wanted to
      buy a lot of the pref.B". Since the pref.B is
      virtually a forced conversion to common (at least in my
      view), then why would exercising rights and
      over-subscription be in our best interest. I may be slow, but my
      course of action is staring to become much
      clearer.

      Thanks to all for your help!

    • I think we have some time before any decisions
      need to be made. The key will be the cash flow off the
      prisons and the business, all the rest of this stuff will
      work it's way out if that's is what is meant to
      be.

      The $150mm (roughly $1.20/shr.)paid out in a PIK
      pref. will be "real" money as Frankwatermelonwine
      mentions. BUt of course the question is what will be it be
      worth when you want to sell it. The important thing to
      keep in mind when your given each of of these
      decisions is what is the comparable worth? In other words,
      if the pref A is yielding 17% then 12% new pref.
      won't be worth as much. I feel conversion to common
      will be our only option.

      The rights offering
      and the conversion period for the PIK pref. will have
      a reasonable amount of time to decide. IMO, if you
      choose NOT to add more money to PZN considering selling
      the rights early.

      Of course all of these
      crazy options PZN is taking are forced. PZN has no cash
      so they must give us "paper" instead. The IRS does
      not allow PZN to pay in common stock because it has
      minimal par value or redemption value. Pref. Stock does.
      Conversion to common stock windows like PZN has set up are
      ways PZN can quickly get get the pref. off it's
      balance sheet. As I explained earlier why, everyone knows
      a 12% yield on it is not a "fair value" and opting
      out quick is probably the better route.

      If you
      are a really long term investor that does not wish to
      commit more money this is what I'd do. Sell your rights
      in the first few days, convert your PIK to common
      when given the window and forget about your shares for
      5 years. The rights offering and the conversion of
      the PIK, IMO, will leave this stock dead for awhile.
      The sheer amount of new shares coming out will be
      very large and be a big over hang through a lot of
      this year. The stock certainly could go into the $2
      area, maybe lower, who knows. If the right offering
      came tomorrow the price would be $2.19 and that would
      be 91mm shares. Add the expected conversion of
      $150mm from the PIK pref. at say $3 and that's another
      50mm new shares into the market place. PZN has 120mm
      shares or so now. SO that's 141mm new potential shares
      coming into the market place this year. PL also gets
      warrants on 10% of the company too. It's going to be hard
      to keep up with the amount of shares coming
      out.

      One option if you own a good slug of stock already
      and want to buy more, think about the pref. A
      instead. Sure the upside is limited, but if you look at it
      as a part of your whole PZN investment you'll be
      earning(hopefully)some income off of your investment in the next few
      years. If you have 2/3's in common and 1/3 in the pref.A
      your average return will be 6%( the pref. is about
      17-18% yield) on all the invested money. Also the pref.
      A is not effected by future dilution.

      I know
      some think I'm too bearish but I'm just trying to be
      ojective. A rights offering has a ex-date just like a cash
      dividend. The rights will trade when-issue for a few days
      prior to going ex. If everyone gets two rights per
      every three shares owned and the common is at $3.375, a
      excerise price will be $2.19. So what's the right worth to
      go ex.? If the stock remains unchanged then the
      intrinsic value of your rights is $3.375-$2.19=$1.19/2 or
      $.59 a peice. If it took one right to buy one share
      then the stock would go ex. $.59 to roughly $2.75. The
      rights trade on their own and relative to the common. If
      the stock moves to $3, the right would be worth $.81
      ($3-$2.19) If the common moves to $2 1/8 the rights will
      trade for almost nothing. Plan on it going to $2 1/4 to
      $2 1/8(or the exercise price what ever that is)
      IMO...I'd tell you in more detail why it will but I don't
      want to give my trading strategy away on these
      things...don't need the competition.

      I'll keep trying to
      explain this stuff as best I can, it's not easy keeping
      up with it. I'm following it because I think there
      is a good buying opportunity coming up.


      Cheers

    • "You're"....gosh can not get it right.

    • my memory...as to when i said the pl deal will not happen

    • Like most who read this Board I am impressed with
      your vast Knowledge to the point where I am Now
      seeking your advice. Which is a good thing! I recently
      purchased 650 common shares
      in anticipation of the
      announced PL deal with high hopes that I could at least
      Double my investment and dreams that the stock
      would
      skyrocket! It as you know has not which makes me wonder. My
      question is What should I do now? Should I sell now and
      Buy back later?
      or Should I just sit on it and
      hope for the best? Any advice is appreciated...

    • If it's in PL's interest for the stock to decline
      prior to establishing the rights' price, then it may,
      but if it isn't in PL's interest, then there s/b some
      support at some point. Not sure what to make of it,
      though.
      Separately, in Flip's analysis of dilution, the only losers
      are the ones who do not exercise their rights, right?

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