Bankruptcy Plays
- Thread starter rtharp
- Start date
any opinions on CELL as a play ? Insiders have been buying shares recently.
The following post on yahoo sounds interesting:
Buying CELL here.
by: joejostocks
Long-Term Sentiment: Buy 06/10/02 02:10 pm
Msg: 41929 of 41951
Monday, Jun 10, 2002 2:08 PM
Respond to of 40515
CELL- Here's the deal with CELL. In March of 2003 the holders of the 2018 convertibles can demand to have the company buy back thier bonds for a preset amount. CELL has the option of paying them cash or stock. If they pay in stock it has a massive dilution effect on cuurent shareholders. The lower the stock price the more CELL has to issue. The more stock issued the more dilution. At 25 cents a share we are talking about the bondholders getting about 90% of the company. At 25 cents a share, after the new shares are issued book value would be about 50 cents a share. If CELL can pay off the bonds with new debt the book value per share increases to about $2.50 per share.
IMO to protect current shareholders CELL must come up with new financing. That's the big question, can they? Right now the stock price reflects the worst case. This is not a bankruptcy case that I can see. It's just a matter of possible dilution.
For an aggressive investor I think you would have to think that managementwill do what ever it can pay the bonds in cash. Looking at current sales and also they have a few months for their restructuring to get in place, and their current book value versus debt I think they have a good chance of working this out to a positive for the current shareholders.
Big gamble. Very speculative play but at these levels I believe the rewards much outweigh the risk but certainly something that will take a while to work out. I have a long position.
The following post on yahoo sounds interesting:
Buying CELL here.
by: joejostocks
Long-Term Sentiment: Buy 06/10/02 02:10 pm
Msg: 41929 of 41951
Monday, Jun 10, 2002 2:08 PM
Respond to of 40515
CELL- Here's the deal with CELL. In March of 2003 the holders of the 2018 convertibles can demand to have the company buy back thier bonds for a preset amount. CELL has the option of paying them cash or stock. If they pay in stock it has a massive dilution effect on cuurent shareholders. The lower the stock price the more CELL has to issue. The more stock issued the more dilution. At 25 cents a share we are talking about the bondholders getting about 90% of the company. At 25 cents a share, after the new shares are issued book value would be about 50 cents a share. If CELL can pay off the bonds with new debt the book value per share increases to about $2.50 per share.
IMO to protect current shareholders CELL must come up with new financing. That's the big question, can they? Right now the stock price reflects the worst case. This is not a bankruptcy case that I can see. It's just a matter of possible dilution.
For an aggressive investor I think you would have to think that managementwill do what ever it can pay the bonds in cash. Looking at current sales and also they have a few months for their restructuring to get in place, and their current book value versus debt I think they have a good chance of working this out to a positive for the current shareholders.
Big gamble. Very speculative play but at these levels I believe the rewards much outweigh the risk but certainly something that will take a while to work out. I have a long position.
I don't understand why the theory of 'unlimited' short risk isn't put to bed. Its a cliche, a broker's excuse for not knowing how to short.
'Theoretically' you could lose your entire net worth in a casino too, if you never had the sense to use a mental stop.
Which has a higher probability: a $2 stock gapping up to $20, or a $20 stock gapping down to $2?
Given the current environment, I would say the second scenario is about a thousand times more likely.
