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Post by dreamboatcruise on Aug 15, 2017 10:59:22 GMT -5
Out of curiosity if MannKind were to offer sufficient preferred shares to retail investors that would eliminate the possibility of bankruptcy, what rate of interest would you require to purchase these shares? For instance, if these shares offered 3%, slightly above 30 year US bonds, I would be willing to tie up my $ for an extended period. Given Mannkind's current balance sheet, cash flow, and seniority of Deerfield debt, no interest rate would attract me since I have to doubt MNKD's ability to ever pay any. If I were a large investor I might consider it if the preferred were offered as a convertible with some sort of conversion adjustment if the stock price falls below a certain point -- similar to the convertible coming due next year. In that case, I would still only buy it at a discount to the current market price since I would want to hedge by shorting the underlying shares in order to lock in some profit up front. Wouldn't the sky high borrowing rates prevent someone from shorting to lock in profits on preferred? The rate paid to shareholders at Schwab is now 52%, so those borrowing must be paying at least 60%. Though perhaps purchasing puts could yield similar protection at lower cost.
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Post by Deleted on Aug 15, 2017 11:02:01 GMT -5
dreamboatcruise I don't understand your continued reference to the interest to borrow to short. Please explain.
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Post by dreamboatcruise on Aug 15, 2017 11:10:35 GMT -5
dreamboatcruise I don't understand your continued reference to the interest to borrow to short. Please explain. Read the post I was responding to (I quoted it), it brought up the idea of shorting to hedge preferred. The rate to borrow would seem directly relevant to whether someone could effectively use shorting as mechanism to hedge. Perhaps you know something about that where the borrow rate should not matter. If so, please explain.
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Post by lakon on Aug 15, 2017 12:13:27 GMT -5
dreamboatcruise I don't understand your continued reference to the interest to borrow to short. Please explain. Read the post I was responding to (I quoted it), it brought up the idea of shorting to hedge preferred. The rate to borrow would seem directly relevant to whether someone could effectively use shorting as mechanism to hedge. Perhaps you know something about that where the borrow rate should not matter. If so, please explain. Honestly, I did not read the posts too closely, but I was under the impression that the scenario was fully covered shares by conversion rights so the hedge may not require loaned shares, depending on how it was structured and broker rules. If you hold a contract that can cover the short position, you are covered.
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Post by lakon on Aug 15, 2017 12:20:45 GMT -5
Out of curiosity if MannKind were to offer sufficient preferred shares to retail investors that would eliminate the possibility of bankruptcy, what rate of interest would you require to purchase these shares? For instance, if these shares offered 3%, slightly above 30 year US bonds, I would be willing to tie up my $ for an extended period. Given Mannkind's current balance sheet, cash flow, and seniority of Deerfield debt, no interest rate would attract me since I have to doubt MNKD's ability to ever pay any. If I were a large investor I might consider it if the preferred were offered as a convertible with some sort of conversion adjustment if the stock price falls below a certain point -- similar to the convertible coming due next year. In that case, I would still only buy it at a discount to the current market price since I would want to hedge by shorting the underlying shares in order to lock in some profit up front. From a trading perspective, I see your point. From a business perspective, what if Deerfield and MannKind decide the most expedient way to turn this around is to restructure debt under a preferred offering that gives equivalent or better terms to convert? Such a deal could recapitalize MNKD, clear up their balance sheet, and Deerfield could guarantee a big pay day for themselves IF they believe in the future of MannKind... As a little guy, it is hard to control the outcome, but as a big guy, like Deerfield, well, you win some and you win some more...
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Post by traderdennis on Aug 15, 2017 14:38:53 GMT -5
Given Mannkind's current balance sheet, cash flow, and seniority of Deerfield debt, no interest rate would attract me since I have to doubt MNKD's ability to ever pay any. If I were a large investor I might consider it if the preferred were offered as a convertible with some sort of conversion adjustment if the stock price falls below a certain point -- similar to the convertible coming due next year. In that case, I would still only buy it at a discount to the current market price since I would want to hedge by shorting the underlying shares in order to lock in some profit up front. From a trading perspective, I see your point. From a business perspective, what if Deerfield and MannKind decide the most expedient way to turn this around is to restructure debt under a preferred offering that gives equivalent or better terms to convert? Such a deal could recapitalize MNKD, clear up their balance sheet, and Deerfield could guarantee a big pay day for themselves IF they believe in the future of MannKind... As a little guy, it is hard to control the outcome, but as a big guy, like Deerfield, well, you win some and you win some more... Deerfield's certainly could do this, but I doubt it would happen without at least a 50% dilution of current stockholder equity, and probably much closer to 80% of the current equity.
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Post by dreamboatcruise on Aug 15, 2017 15:01:15 GMT -5
Read the post I was responding to (I quoted it), it brought up the idea of shorting to hedge preferred. The rate to borrow would seem directly relevant to whether someone could effectively use shorting as mechanism to hedge. Perhaps you know something about that where the borrow rate should not matter. If so, please explain. Honestly, I did not read the posts too closely, but I was under the impression that the scenario was fully covered shares by conversion rights so the hedge may not require loaned shares, depending on how it was structured and broker rules. If you hold a contract that can cover the short position, you are covered. That thought had crossed my mind, but it didn't seem like it would be likely. You can't short by buying a call option, for instance. When you short you have to deliver something that includes all the rights of being a shareholder... right to vote, right to collect any declared dividends, etc. It doesn't seem possible that a preferred shareholder could split off the equivalent of a common share inclusive of all the rights and deliver that to a purchaser. I'm speculating here just based on reasoning. Curious if anyone else knows with certainty.
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Post by markado on Aug 15, 2017 15:21:02 GMT -5
Beyond the treatment of the preferred shares, MNKD should look to offer a parallel rights offering to LTS's, 1) to reward for LT support and offer an option to offset dilution, and 2) to take advantage of a separate set of dollars, thus increasing their immediate access to capital. It is a scenario I am hoping for.
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Post by thall on Aug 15, 2017 17:17:12 GMT -5
Honestly, I did not read the posts too closely, but I was under the impression that the scenario was fully covered shares by conversion rights so the hedge may not require loaned shares, depending on how it was structured and broker rules. If you hold a contract that can cover the short position, you are covered. That thought had crossed my mind, but it didn't seem like it would be likely. You can't short by buying a call option, for instance. When you short you have to deliver something that includes all the rights of being a shareholder... right to vote, right to collect any declared dividends, etc. It doesn't seem possible that a preferred shareholder could split off the equivalent of a common share inclusive of all the rights and deliver that to a purchaser. I'm speculating here just based on reasoning. Curious if anyone else knows with certainty. No, it's basically just a variation of shorting against the box:
www.investopedia.com/terms/s/sellagainstthebox.asp
The preferred holder is basically shorting against the box the shares he already owns via the convertible. In effect, you're selling the shares you already own with the intention of buying them back before or when the debt matures.
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Post by dreamboatcruise on Aug 15, 2017 17:41:00 GMT -5
That thought had crossed my mind, but it didn't seem like it would be likely. You can't short by buying a call option, for instance. When you short you have to deliver something that includes all the rights of being a shareholder... right to vote, right to collect any declared dividends, etc. It doesn't seem possible that a preferred shareholder could split off the equivalent of a common share inclusive of all the rights and deliver that to a purchaser. I'm speculating here just based on reasoning. Curious if anyone else knows with certainty. No, it's basically just a variation of shorting against the box:
www.investopedia.com/terms/s/sellagainstthebox.asp
The preferred holder is basically shorting against the box the shares he already owns via the convertible. In effect, you're selling the shares you already own with the intention of buying them back before or when the debt matures.
No to which... agreeing that preferred shareholders shorting would need to borrow, or that they wouldn't need to borrow? It would seem even in the straightforward selling against the box, the person shorting would need to deliver a real common share within the delivery period, even if a broker we're willing to consider it borrowing against the shares still owned by the person... i.e. I'm selling shares short from one account I own and borrowing those shares interest free from my other account, for instance. With a preferred shareholder they don't yet have a common share they could send to the person they sell short to, so it would seem a common share still has to be acquired from somewhere in order for the preferred shareholder to short.
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Post by thall on Aug 15, 2017 17:51:57 GMT -5
No, it's basically just a variation of shorting against the box:
www.investopedia.com/terms/s/sellagainstthebox.asp
The preferred holder is basically shorting against the box the shares he already owns via the convertible. In effect, you're selling the shares you already own with the intention of buying them back before or when the debt matures.
No to which... agreeing that preferred shareholders shorting would need to borrow, or that they wouldn't need to borrow? It would seem even in the straightforward selling against the box, the person shorting would need to deliver a real common share within the delivery period, even if a broker we're willing to consider it borrowing against the shares still owned by the person... i.e. I'm selling shares short from one account I own and borrowing those shares interest free from my other account, for instance. With a preferred shareholder they don't yet have a common share they could send to the person they sell short to, so it would seem a common share still has to be acquired from somewhere in order for the preferred shareholder to short. No, you are borrowing your own shares -- the shares you own through the convertible. It's as though you are not really shorting the shares, but are actually selling them. But at some point before the bond comes due, you have to buy back the shares you sold in order to deliver them back to whoever sold you the preferred.
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Post by dreamboatcruise on Aug 15, 2017 18:29:35 GMT -5
No to which... agreeing that preferred shareholders shorting would need to borrow, or that they wouldn't need to borrow? It would seem even in the straightforward selling against the box, the person shorting would need to deliver a real common share within the delivery period, even if a broker we're willing to consider it borrowing against the shares still owned by the person... i.e. I'm selling shares short from one account I own and borrowing those shares interest free from my other account, for instance. With a preferred shareholder they don't yet have a common share they could send to the person they sell short to, so it would seem a common share still has to be acquired from somewhere in order for the preferred shareholder to short. No, you are borrowing your own shares -- the shares you own through the convertible. It's as though you are not really shorting the shares, but are actually selling them. But at some point before the bond comes due, you have to buy back the shares you sold in order to deliver them back to whoever sold you the preferred. But you don't really own the shares until you convert, right? So it doesn't seem like you'd be able to deliver the common share when you sell it short and you only have 3 days to do it. Have you actually done this, or simply speculating that it's the way it should work? I could always call my friendly Schwab loan department. If what you are saying is true then preferred holders should be able to loan stock for others to short as well.
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Post by scoy on Aug 15, 2017 20:45:31 GMT -5
No to which... agreeing that preferred shareholders shorting would need to borrow, or that they wouldn't need to borrow? It would seem even in the straightforward selling against the box, the person shorting would need to deliver a real common share within the delivery period, even if a broker we're willing to consider it borrowing against the shares still owned by the person... i.e. I'm selling shares short from one account I own and borrowing those shares interest free from my other account, for instance. With a preferred shareholder they don't yet have a common share they could send to the person they sell short to, so it would seem a common share still has to be acquired from somewhere in order for the preferred shareholder to short. No, you are borrowing your own shares -- the shares you own through the convertible. It's as though you are not really shorting the shares, but are actually selling them. But at some point before the bond comes due, you have to buy back the shares you sold in order to deliver them back to whoever sold you the preferred. No, you cannot loan shares that you have right to own, but don't own. Pre-conversion there are no freely tradable shares to own. They're sitting in Mannkind's treasury. In the event Mannkind decides to sell convertible preferred shares it will do nothing to help the shorts borrow shares. Imagine if the opposite was true. Imagine if you could loan own something that you had the right to own, but didn't own. They could cheaply buy options to buy Mannkind at a 1000 dollars per share, and use those to loan against their short.
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Post by jred on Aug 16, 2017 10:00:53 GMT -5
Agree with scoy here. Just owning the preferred does not give you loanable common shares - to others or yourself. Based on the terms of the convertible you may have the option of providing a confirmation of a conversion and then be able to sell long the commons shares you will be receiving. This is not always the case and the caveat is always the common you are entitled to from the preferred conversion needs to be scheduled to be delivered before the sale settles.
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Post by cjm18 on Aug 16, 2017 16:38:05 GMT -5
Can preferred shares be issued before November. November is the date when mnkd won't be on tase.
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