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RAIT Financial Trust Message Board

  • sme20_98 sme20_98 Jun 23, 2010 8:19 AM Flag

    All These Conversions @ a Discount

    mean only one thing--these players are banking on a common dividend early next year at a rate which will more than compensate for the discount. As we approach year end and more positive earnings continue to accelerate, stock price will start to move up considerably. JMHO, but there has to be some monetary reason for all these conversions to common at a discount. Also, increase in common dus to dividend reinstatement, stock price will triple or more, making the conversion even more lucretive. Smart move on their part and RAS management. I don't like the dilutive impact, but it will be short lived.

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    • "mean only one thing--these players are banking on a common dividend early next year at a rate "

      How about if they own the bonds and want to cash out now before RAS defaults in 2012.

      "JMHO, but there has to be some monetary reason for all these conversions to common at a discount. "

      You aren't at a level where you could even comprehend how little you know about investing in convertible securities.

      • 1 Reply to dividendaristocrat
      • The folks who were going to do that exited their bonds 15 months ago. Those who are in now either bought when the discount was more severe and are taking profits or have decided that they can do better than recovering face value plus 13% in some other vehicle. RAS common is one such vehicle (it should go more than 5x from current prices over the next couple of years), but if they have something else in mind (AAA bonds that are still paying and are likely to keep paying are apparently still available for at little as 30 cents on the dollar).

        Whatever their motivation, the sale at discount is good for RAS. Less quarterly interest to pay. No threat of a put in 2012.

    • You held NO position from $9. None. Zero. Zilch. Nada. You weren't even short. I have, for what its worth, approached almost almost all stocks just like that. I don't invest in stocks I don't understand.

      While I've held and improved my position in RAS (something you have concept of how to do), I have created another 4x gain on DSCM (which I'd already taken 8x once), a 10x gain on MF (if you still hold it you are at 4x at best), a 3.5x on RAS preferreds (which pay me a far better dividend that Wynn paid), a 2x gain on TA (even at its current price, which is below the price I initially bought at but well above my average price).

      If you are playing with large enough amounts of money, you might well be able to buy my current RAS position with your WYNN divvy, but everybody starts in a different place, and RAS is never more than 10% of my portfolio.

      But you err in thinking that this is a competition. There was a time in the early 1950's when Graham could have trivially bought Buffet's entire position in everything with the dividends from his various investments. That doesn't mean that Buffet didn't understand how to make his money grow at least a little bit better than Graham did.

      You also err in your continuing belief that RAS current price is meaningful into the long term. I remain confident that I'll get at least 5x from it, and the 5x will be against a position that is already 5x larger than it was just two years ago, but without investing any more money than I had in the stock back then. WYNN was a good choice. RAS preferreds were at least as a good a choice. RAS will prove to be a better choice (but over a longer time frame).

    • I held a bear position from $9, which became HSY, which became WYNN. That is lucky but the outcome was genius. You've never approached anything like thta. All of it is documented real time on baard. BTW: In addition to being a 5-bagger, WYNN paid a per share dividend to me 2x as much as RAS current price. I coudl proably buy all your core positon with proceeds from Wynn divy.

    • My outside the box thinking gave me $4.27 where you got $2.50 and a call for a base right around where we are now from $3.75.

      You aren't as good as you think you are. You swung an uninformed tire iron and got in the ballpark. I used a more generously equipped tool box and got it right.

    • My box guided me to the flush call and clear warning of risk/reward over $3. Now we are at a fraction of that value. You held "core" position all the way down. I will be in at $1.50 to do the zombie thang.

    • You've offered the best alternative way of thinking about this for folks with the fixed income orientation that would normally interest people in fixed income instruments to begin with. There are other alternatives.

      If RAS has that level of dividend coming, and many believe it does, then the price will rise a lot. A lot of fixed income folks have lost capital in this market and will be interested in making it up. RAS is likely to go at least 5x from current prices. Its a good candidate from that perspective.

      There are other good candidates in the market, including "too big to fail" candidates like C that will see multiples from current prices before this is over. Selling the position cheap would free money for those candidates.

      There are lots of bonds available at pretty severe discounts right now. Selling RAS convertible notes and the stock they deliver at over 60 cents on the dollar would free up cash to invest in bonds that in many cases are selling for 35 cents on the dollar or less.

      Finally, as deep has pointed out, there may be sellers who simply want out and will move to cash. Personally, I think this is unlikely. Its something that might have been down a year and a half ago at lower prices (and there's no doubt that there were open market sellers at much lower prices a year and a half ago). But RAS and the market are in a different place now, and sellers would have to have pretty bad advice to sell for that reason now.

      • 1 Reply to davisfoulger
      • As I said, many of the convert guys are fixed income ONLY and can't hold equity for more than a nano second based on fund MANDATE. Do you own the vanguard convertible bond fund? Do they hold equities? More importantly, if you are a convert bond holder, it makes ZERO sense to trade out at a discount for equity because you think equity will offer a dividen and more attractive. Why? Because that scenario means coverts will be 100% face value, or more, in 2012. If the EQUITY works out, future convert bondholders would be made 100% whole, as it is the more senior instrument in the capital stucture. It is illogical to like the stock and Give away the bonds...
        The discussion above is from someone with ZERO experience or training in real capital markets. Sorry.

    • I absolutely agree that the scenario you lay out is an excellent reason to do a deal right now. My guess is that the motivation of sellers is somewhat varied, but the dividend argument you lay out is excellent, and not one that has been presented by others so far.

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