if $5 times 5mm shares implies 25mm equity after bonds paid off.....if shareholders get 7, it will be 3 years....12% return with risk.....why not buy 9 1/2% 7/2004 at 94 for over 12% with more certainty.....if the liquidation is completed sooner.,, the yield per year goes up because you get the discount in say a year????? pro or con???? doesnt the 5 dollar bid on the common imply the bonds are dollar good??????/
I think management better find some cash soon cuz they have a major amount debt due in July next year and the 9 1/2% debs due July 2004. I would guess that these debentureholders will not be overly patient if their obligations are not met in a timely fashion. The implications of not meeting these obligations are not pleasant to comtemplate from the shareholder point of view.
I am just saying if you like the arb and own or are buying the stock, dont neglect the bonds,,,, at least keep and eye on the bid side... if not 94, would you pay 90???? about 15%[ and in a year, 9 1/2 plus 10 pts =20%if the liquidation last a year] I have been saying for a year to look to the bonds instead of the risky dividend.....if you get the interest for two years,,, the bonds could be paid 80 cents on the dollar, and you would break even, just like money in the bank at 1% .....pro or con
I agree with you, which is why I bought the bonds instead of the stock. I think a lot of people who own the stock or who have thought about owning the stock have never even considered the bonds.
The bonds have traded as low as 75 in the past year, at a time when the common was much higher than it is now, which in my mind was a very illogical relationship of price between the two securities. At 75, the bond market was saying that there was a substantial risk of default. But in the event of a default, the common would get wiped out altogether, but the common was trading at a much higher price then than it is now. An argument could be made that a good arb position at the time would have been to buy the bonds and short the stock (and with benefit of 50/50 hindsight you would have made money on both sides of the position).