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
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.
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
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%
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
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
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.
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?
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.
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).
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..
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
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
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
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.
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
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.
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.
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
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,
Separately, in Flip's analysis of dilution, the only losers
are the ones who do not exercise their rights, right?