nice to see the B trading at about par; would be nicer if the call date was a bit further out; however, one reason they may not call it is they have used a lot of the B for their warden's incentive packages some of which will be vesting soon
There really is no incentive for us right now to convert into common, as you say it would have to be a decent premium to take a lower class that pays no dividends. They did get some off the books back then I believe this way.
The question is, is it accretive for common or dilutive at this point, my thoughts are, dilutive. It might be better for common holders to pay cash instead of diluting future earnings to pay this off. It's $105mm that it would take to pay the B off. Back a few years ago they couldn't have gotten a decent enough rate so issuing more common make sense. I'm not sure now. I think they could easily get under 9% if they issued a bond deal.
On that note it does make me think the pref A is a tad over-valued at 9.3%.
For the SEC docs:
CONVERSION INTO COMMON STOCK AT THE OPTION OF THE HOLDER. Each share of Series B
Convertible Preferred Stock may, at the option of its holder, be converted into
shares of Prison Realty common stock during either: (i) the period of 10
business days commencing on the sixth business day after the date of issuance of
the Series B Convertible Preferred Stock; or (ii) the period of 10 business days
ending 90 calendar days after the date of issuance of the Series B Convertible
Preferred Stock (or the first business day thereafter). For each share of Series
B Convertible Preferred Stock converted into shares of Prison Realty's common
stock, the holder will receive that number of shares of Prison Realty's common
stock equal to the stated amount ($24.46) per share, divided by the conversion
price of the shares of Series B Convertible Preferred Stock. The conversion
price of the Series B Convertible Preferred Stock shall be fixed at a price
equal to the average of the closing prices of Prison Realty's common stock on
the NYSE for the 10 consecutive trading days ending one day prior to the
applicable conversion period; provided, however, that the conversion price used
to determine the number of shares of Prison Realty's common stock issuable upon
conversion of the Series B Convertible Preferred Stock shall not be less than
$1.00. In the event that the average closing price during the 10 day trading
period is less than $1.00 per share, then the number of shares of common stock
issuable upon conversion shall be completed on the basis of such $1.00 per share
During: (i) any period in which shares of Series B Convertible Preferred
Stock may be converted into Prison Realty common stock; or (ii) any period
during which the conversion price of shares of Series B Convertible Preferred
Stock is being determined, Prison Realty may not declare a dividend or make a
distribution on the outstanding shares of Prison Realty's common stock, in
either case, in shares of Prison Realty's common stock, or effect a subdivision,
combination, consolidation or reclassification of the outstanding shares of
Prison Realty's common stock into a greater or lesser number of shares of common
I'm not talking about a mandatory call for the preferred. I'm talking about a tender offer at a premium. That's at the holder's discretion. I don't see anything preventing such a deal if issuer AND holder agree. And why wouldn't they? Issuer gets rid of an expensive obligation and holder gets out at a nice premium.
""I still think they're foolish for not doing an exchange offer of common for preferred. Here's how such an offer might work"
ugadawg_98 they probably would like to but they can't according to the terms of the offering. It can only be tendered for cash...good ol' cash.
I still think they're foolish for not doing an exchange offer of common for preferred. Here's how such an offer might work:
1 pf B for 1.5 common. Yes, there's more
common issued, but you're knocking off a
$2.93 dividend for every B. tendered, so
it might actually be accretive to common. At the right ratio, everyone might win: EPS accretion for common and preferred gets
taken out at a premium. Waiting til next September to pay cash for a greater number
of shares, only makes it more expensive.
In the next year the pref. A and B should start trading a lot closer together I would think.
Right now the pref A at $21.40 yields 9.34% and has a $25 par value ($2 annual dividend).
The pref B at $24.30 has a 12.05% yield in stock and has a $24.46 par. As mentioned in Sept of '03 it will start paying a cash dividend of $2.93/shr.
The A is senior to the B but probably not worth a 3% difference.
For yield buyers the 2 preferreds should look the same in 10 months.
The A with a 8% yield probably has little chance of being called but the B at 12% has a large chance of being called.
SO the question is, is the A trading higher then it normally would because of the B or lower? Any guesses? I guess we need to find out where the 9 7/8% bonds trade in order to determine that.
If you own a lot of the B you'll want to reread this part:
REDEMPTION AT THE OPTION OF PRISON REALTY. At any time or from time to time commencing six months following the date which is the later of: (i) the third anniversary of the issuance of the Series B Convertible Preferred Stock; or (ii) the date which is the 91st day following the repayment in full of Prison Realty's 12% senior notes, due June 2006, Prison Realty shall have the right, at its sole option and election, to redeem, out of funds legally available therefor, all, or a portion, of the outstanding shares of Series B Convertible Preferred Stock. Prison Realty may redeem the shares of Series B Convertible Preferred Stock at a cash price per share equal to the stated amount ($24.46) per share, plus any accrued but unpaid dividends. If less than all shares of Series B Convertible Preferred Stock outstanding at the time are to be repurchased by Prison Realty, the shares of series B convertible preferred stock to be repurchased shall be selected pro rata; provided, however, that in the event that less than 10% of the number of shares of Series B Convertible Preferred Stock originally issued are then outstanding, Prison Realty shall be required to repurchase all of such outstanding shares if it elects to repurchase any shares
OK I'm done...........