I NEVER suggested that BAC could not hedge their CFC preferred investment. I merely said that I had read that Mozilo had mentioned that BAC couldn’t SHORT shares to hedge its investment. I readily acknowledged that even if BAC couldn’t short CFC’s shares there were still myriad ways to hedge its preferred position. Having said that, the 8-K filing states specifically that BAC cannot “sell or transfer” CFC common shares for 18 months after conversion. This does NOT say BAC can’t short CFC shares PRIOR to conversion (as I thought Mozilo had suggested), so I must assume that in fact there isn’t a current restriction on BAC’s shorting CFC’s stock. But, again, this is a red herring – I already acknowledged that BAC could find a way to hedge its position even if it couldn’t specifically short CFC’s stock.
Now, you seem to refuse to acknowledge that this deal is NOT a floorless convertible and you have asked me to provide you with the “certain events” language that clears this issue up. So be it, here it is (verbatim) from the 8-K:
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(f) The Conversion Price shall be subject to adjustment as follows:
(i) If the Company shall (1) declare or pay a dividend on its outstanding Common Stock in shares of Common Stock or make a distribution to holders of its Common Stock in shares of Common Stock (other than a distribution of Rights), (2) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (3) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (4) issue by reclassification of its shares of Common Stock other securities of the Company, then the Conversion Price in effect immediately prior thereto shall be adjusted so that a holder of any shares of Preferred Stock thereafter converted shall be entitled to receive the number and kind of shares of Common Stock or other securities that such holder of Preferred Stock would have owned or been entitled to receive after the happening of any of the events described above had such shares of Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto. An adjustment made pursuant to this Section 3(f)(i) shall become effective on the date of the dividend payment, subdivision, combination or issuance retroactive to the record date with respect thereto, if any, for such event. Such adjustment shall be made successively.
(ii) If the Company shall issue any shares of Common Stock, or any rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (including any distribution of Rights, whether or not currently outstanding, upon the occurrence of any Distribution Date (as defined in the Rights Agreement)), at a price per share that is lower than the then current market price per share of Common Stock (as defined in Section 3(f)(v) below), the Conversion Price shall be adjusted in accordance with the following formula:
( N x P )
AC = C x O + ( M )
O + N
where
AC = the adjusted Conversion Price
C = the current Conversion Price
O = the number of shares of Common Stock outstanding on the
record date
N = the number of additional shares of Common Stock offered
P = the offering price per share of the additional shares
M = the current market price per share of Common Stock on the
record date
(Yeah, this formula won’t paste cleanly, but you get the picture)
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That’s the “certain events” language. Clear as day. Now, are you finally willing to admit that this is NOT a floorless convertible? Because that seems to be the real point of your entire discussion on this issue thus far.
Like you, I think CFC is in deep trouble and that its stock is going down. (Although I have no position in the stock and never will.) But I’m not going to try to convince myself of things that just aren’t true (e.g., this is a floorless convertible) in order to convince my brain that I’m right. I’d prefer to stick to the facts.
