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Eagle Rock Energy Partners, L.P Message Board

  • eckhart2 eckhart2 Jul 1, 2010 9:36 AM Flag


    So we find out that the offering was oversubscribed. I read this as investors signaling that they think EROC was trading on the cheap. It also means more upfront cash for EROC to reduce debt right now. Moreover, more outstanding warrants means potentially more cash in the near future for EROC, as investors exercise rights should EROC trade above 6.

    What say ye?

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    • Yes, I was surprised at the number on unexercised rights too. A lot of people must have had no idea what was going on.

      So the total pool of oversubscription rights will be higher than I originally expected, however most of them will go to the very large unitholders.

      As usual the big funds get the fest. Retail unitholders get to pick up the crumbs.

    • Well, I'm hoping for 300, which would be about a $1K gain on the deal, but I was surprised at the number of rights lost, 1 in 20, that's a shock. So I guess my "whisper" number might be a little higher.

    • I don't think this is different to what I said before but maybe I didn't express it clearly enough.

      Yes, I'm curious how many people get.
      Do let us know.

      P.S. I am not predicting any specific amount that you get because I have no idea how many units/rights you had. All I'm predicting is that you'll get much less than you hoped for.

    • Fine, but that's different than what you said before. It all depends on how many institutions put up cash money.

      I deposited enough cash for 10000 shares. I'll predict I get . . . about 300 shares back. I gather your prediction is a tenth of that. I'll report back, and we'll see!

    • It should be obvious what happens.
      The third does not request oversubscription so he doesn't get any.
      There are 15 oversubscription rights, 2 people requested them. Those 2 people had an equal number of units and therefore rights, so they each get half.

      But the more realistic scenario is 3 people:
      a has 1 million rights
      b has 1000
      c has 1000
      There are 1000 oversubscription units available. You can be sure the large holders know all about this process and they request oversubscription rights. Some small retail holders don't know what is going on so they don't request any.
      So in this example
      a requests 10,000 ovsersubscription units
      b also requests 10,000
      c didn't know about it and didn't request any

      There are 1000 oversubscription rights available. c didn't request any so he doesn't get any.
      b and c both requested 10,000
      But since a holds 1000 times as many units as b he gets 1000 times as many of the oversubscription shares.
      So maybe a gets 999 of them and b gets 1 (I don't know how they handle the fractions).

      So again, the conclusion is that the big institutional holders rake in the extra shares, the little guys get very few.

      Is anyone else except ruby having trouble understanding this? I don't know why he finds the concept so hard to grasp.

      Again, we went through this at PDS and most people on the message board reported that they got single digit or low double digit number of extra shares, however many they requested. I don't remember what was the percentage of unexercised rights in that case.

    • Durban poison.

    • What are you smoking Ruby?

    • No, that doesn't reveal the problem with your logic, let's try again. Three equal unitholders all exercise their rights, say 1000 each. Two of them request oversubscription rights, the third does not. Suppose there are 15 oversubscription rights available. By your reading oversubscription rights would be allocated to each of them, 5 each. But what happens to the 5 rights that are allocated to the unitholder who did not put up money to oversubscribe? They vanish?

    • Here's your example.
      Say, you held 1,000 units and some large fund held 1,000,000 units.
      You got and exercised 350 rights and the fund got and exercised 350,000 rights.
      Both you and the fund requested 50,000 oversubscription shares each.
      But there were only 5,000 oversubscription shares available.
      Since the available oversubscription shares are allocated pro-rata based on the number of rights exercised, the fund gets 1,000 times more oversubscription shares than you. It would get approximately 4995 oversubscription shares, you would get 5. It doesn't matter that you both requested and put up funds for 50,000 oversubscription shares - the allocation is based pro-rata on rights exercised - as it clearly states in the prospectus which I excerpted last night on this board.
      That is the model that would be applied across all the people who applied for oversubscription shares.

    • Why don't you read what I wrote or read the prospectus? The section I excerpted is pretty clear.
      Who said anything about allocating to people who did not request them?

      Oversubscription requests will be allocated pro-rata based on rights exercised (not on number of oversubscription shares requested). It's not such a difficult concept, is it?

      And most people (certainly all large holders) who exercised their rights would have also requested oversubscription shares.

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