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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
      • 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.

      • 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.

    • You are right about Harvard finance! I've learned
      a lot from following this board but now this buy
      and hold guy is in way over his head with this latest
      PZN deal. Perhaps you and other finance folks who
      post here could conduct a what to do with your PZN
      common, "101," in lay terms. I'm not asking for advice
      but I would like to have a better understanding of
      what shareholders options will be. Thanks in advance
      to all.

    • I will re read the last dozen posts a few more
      times in the next few days and maybe I will get a
      better picture of what is going on. PZN needs money
      which we will give to them so as not to lose our
      relative position. They will get stronger and be able to
      pay us back eventually. The California outfit is
      backing us up as they have good credit and are taking a
      piece of the action for their services. Right so far ?
      One question, if PZN has to pay out something to us
      to keep their REIT status doesn't whatever they give
      us have to have some real value. As Go2Glenn said:
      Can we have the 101 course. THANX FWW

    • 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

    • So if opt to do nothing and by the end of the
      rights period the rights are trading at say 1/64, you
      have effectivly lost 1/3 of your investment in the
      stock. Not a plesant thought.

      If your really
      worried about the effect of the rights offering (and the
      ex for the special div. is not involved) sell your
      shares a few days PRIOR to ex-rights date and buy them
      back at the end. IMO this is a very good option if you
      do not plan on investing more into PZN. The pressure
      on PZN stock will be great. Also you have to
      becareful shorting the stock as you will owe the
      rights.

      Selling early and buying the last few days probably is a
      good option for many. Plan your timing so you don't
      have the 31 wash sale rule to deal with and you can
      have the tax loss to help this year too. Take the last
      day of the rights offering...count 32 days back and
      sell.

      Remember the rights and the new pref. will have ex-dates
      where the common drops the amount of the dividend. In
      theory there is no advantage to buying the day before or
      after. In many ways is cheaper after ex-date, no taxes
      due and less buying. Tax free accounts do sometimes
      trade for the dividend.

    • I am at the point where I really do not want to
      put any more $$$ into PZN; and I don't want to suffer
      any more losses. I intend to hold what I have over
      the long term. So I guess I'll monitor the posts here
      since I am sure many strategies will be
      discussed/developed over the coming weeks. Thanks again for your
      insight.

    • Are you guys nuts? That is like saying
      any
      dividend you get is worth nothing since
      it depletes the
      company of that value.

      By the way, just read a
      prison overcrowding
      article in local paper yesterday.

    • I'm not sure where I said the dividend was valued
      at zero. What I was saying is: Since a stock OPENs
      ex-divdend date less the dividend there is no inherent
      advantage to owning it 2 days before ex-date. Why? As I'm a
      large holder your aware if a stock is $3 and goes
      ex-dividend for $1, the NYSE adjusts the price on the opening
      to open to $2. All dividend paying stocks work this
      way.

      Why some DO buy large expected dividends is because
      many feel buying comes in after the ex date and the
      stock will open up from their adjusted opening. It's
      certainly not always the case and sometimes the stocks can
      be very weak ex-div.

    • ""As YOUR a large holder"....

      I am not a large holder, I have 100 shares at this point for a record date position.

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

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