Post by cjc04 on Oct 30, 2017 14:38:10 GMT -5
IMO the purpose of the latest Deerfield amendment was an agreed attempt to eventually convert the debt to shares, but I would guess they haven't done it yet. The only exception would be if the stock price is below 3.25 at the January deadline.
Deerfield is guaranteed it's $10M payment - MNKD had to put the money in escrow. If Deerfield only wanted the cash there would be no need for the amendment - Deerfield could have demanded the $10M instead of putting it in escrow.
I don't have any insight into Deerfield's thoughts of MNKD beyond what others have speculated, but there is optionality value in the terms that benefit Deerfield.
Worst case they're guaranteed $10M cash - they won't do any conversion that would net them less.
How do they do better? - Inserting my long biased theory here -
- If Deerfield felt (or had some insight) that MNKD stock price would go up significantly within any 3 day period between now and Jan 15,2018 they could collect stock worth considerably more.
Using recent price action as an example -
MNKD's VWAP
on 10/3 2.71
on 10/4 3.36
on 10/5 5.04
3 day AVG 3.70
- So on day 4 Deerfield elects to convert debt payment to shares. $10M / 3.70 avg yields 2,702,702 shares. In my example MNKD closed at 5.03 on day 4 meaning shares were worth $13.6M.
Terms like this are not uncommon in convertible securities like convertible preferreds or warrants, so they aren't doing anything way outside the norm. Holders (like Deerfield is in this case) will usually find a window to exercise the conversion into shares that benefit them. MNKD hopefully gets the cash liability settled with shares and Deerfield has possible upside - especially if they feel there is a potential significant upside move within a 3 day period in the window. (Like maybe around Nov 7? - Sorry couldn't help myself.)
One last note - the amendment lets Deerfield do this for up to 4,000,000 shares on conversion. The first $10M worth goes to the October payment, but if they do more it would go against future principal payments.
Great explanation.... seems to me Deerfield is aware of possible events between now and Jan 15th. If they happen, and the sp takes off, then they convert with the 3 days prior avg. If they don’t happen, then they take their $10 mil safely sitting in escrow.
Why Jan 15th though? It makes me think the “possible events” aren’t necessarily imminent, which makes me think we drift lower without any news, which makes me think $3.25 could be the ceiling, not the floor.....
I’m just looking for a bottom so I can go all in again on options.... looks to me like this is the bottom, OR if my theory above happens then I’m targeting $2.25.