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Corrections Corporation of America Message Board

  • axel_hose axel_hose Sep 22, 2000 6:39 PM Flag

    monday's price

    By my calculation, the new price will be
    about
    $7/8 with almost 100 more shares received upon
    conversion of the preferred(first window) for every 100
    shares you had today. However since today's 1 3/4 price
    is probably somewhat arbitrary relative to
    fundamental value it may not work out exactly that way. If
    the 7/8 is a good number and holds thru the second
    conversion window, you would get about 140 more shares for
    each 100 held today.But the price should drop to 5/8
    after that.

    Also it appears that if the
    preferred stays above $17.50 then converting is not the way
    to go.Even if the preferred drops considerably below
    that, it's still probably better to hold than the stock
    due to the dividend(even if the dividend is in
    stock).

    flipper, you seem to be the expert here. Am I in the
    ballpark?

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    • The conversion of Pref to common based on the 10
      trading days prior to the conversion will give the Pref a
      market value approximately the same as it's face value.
      The preferred is like getting a voucher to buy
      common.

    • nor iron bars a dividend, Sandman. Of course,I
      would expect management to paint the bar gold and have
      them delivered in a Brinks truck. Then you could
      figure your tax bill and PZN could pay more big fees to
      consultants and investment advisors.

    • Please read post #15344 for small mirth amid crisis.

    • PIK is payment in kind. Just like the PZN shares.
      The dividends are paid in additional
      shares. This
      is actually the second time CMM
      has done it. It
      issued the CMM preferred "F"
      for last FY's income. It
      was PIK also.

    • What does PIK stand for? How do we know that the
      CRIIMI stock will satisfy IRS rules? They are just now
      doing this like PZN? Do you have an example that is old
      enough to prove the IRS accepted it?

      I can find
      only one exception that can qualify the distribution
      as a property distribution. The issuer has the right
      to redeem and at the issue date it is more likely
      than not that the right will be exercised. I don't
      know how a company or the IRS could prove this either
      way. Company can say sure we intend to redeem and
      later say circumstances have changed which make
      redemption impossible.

    • No. Distributions of PIK securities DO satisfy

      IRS rules even if they look like splits to
      us.
      Other REITS have done it also. See the attached
      link.
      http://biz.yahoo.com/prnews/000912/md_criimi_.html

    • From IRS pub 542:
      "Any part of a distribution
      from current or accumulated earnings and profits is
      reported to the shareholder as a dividend.Any part of a
      distribution that is not from earnings and profits is applied
      against and reduces the basis of the stock in the hands
      of the shareholder."
      I think this means that your
      basis in the common will be reduced by the value of the
      distribution.. So if you sell it you will have more taxes to pay
      or less of a tax loss than you thought.If the
      distribution holds up as a dividend then essentially you will
      pay double tax on it. Doesn't sound right does it?
      Leads me again to believe that it's really a
      non-taxable stock dividend. That would be consistent with the
      above tax code.Basis of the original shares would be
      adjusted down for stock received as in a stock split.

    • The IRS might challenge it. It would bring in
      about the same amount of tax dollars if PZN had to pay
      it(assuming no bankruptcy). I think they might challenge
      because this is basically a non-taxable stock dividend.
      For the preferred dividend to be counted a property
      dividend it must result in property or cash to some
      shareholders and an percentage interest(ownership) increase to
      others.Just being a convertible preffered won't do it. In
      fact it might pay some stockholder to challenge it to
      eliminate their tax on the distribution.

    • Need High Yield writes
      "The IRS may not
      challenge this since it brings in more taxes. They don't
      challange OVERPAYMENTS! I would like to join others in
      protesting paying taxes on $24.00+ per share of preferred
      when I have gained NOTHING!!!!"

      ....and that's
      precisely why I've believed and continue to believe that if
      you're going to invest at all, the preferred A is the
      way to go.

    • Good to see you back.

      I haven't done the
      research, but I tend to agree with you. I thought at one
      point (almost a year ago) we collectively decided that
      a REIT qualifying dividend had to be paid either
      with a) something other than stock or b) a choice of
      securities that would change respective equity interests. In
      fact, the company at one point said that if a PIK were
      to be paid, it would involve a choice between two or
      more securities.

      I doubt that they are ignoring
      previous counsel. Someone has probably advised them that
      the conversion features do in fact disrupt the
      proportionate equity interests. In any event, you (and all
      shareholders) will get a 1099 for the dividend.

      Another
      issue I've puzzled over is how this dividend pays out
      the accumulated E&P. I believe it only counts as
      reducing E&P to the extent of its fair value. Seems that
      the IRS could easily say, as the market has, that the
      Pfd B is worth less than face value.

      But this
      discussion is meaningless. The tax on the $24+ value is like
      a forced capital contribution. The alternative was
      for the company to pay tax as a disqualified REIT,
      which probably would have led to bankruptcy. Of course,
      the best alternative all along (at least since the
      spring of 1998)would have been to sell the stock.

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