Forum Replies Created
-
AuthorPosts
-
davelj
ParticipantTheBreeze, want a good deal, et al…
BAC’s convertible deal with CFC is NOT – I repeat NOT – a “floorless convertible” like the deal Jim Cramer describes in the piece TheBreeze posted. So, while CFC may still go to zero it will be in spite of, not because of, the BAC convertible deal. I’m a bear on real estate and CFC, but fer christ’s sake let’s not make stuff up and/or purposely mislead folks where the pertinent issues are concerned. The BAC/CFC convertible deal is a very straightforward deal – nothing AT ALL like the convertible Jim Cramer describes in the column referenced above. Let’s try to stick to facts; they’re bad enough as they are. There’s no need to overstate one’s case.
Participantcapeman,
The “certain events” have been revealed, as the 8-K is now available. In fact, as I suspected, the conversion price can be adjusted if “certain events” related to stock splits and/or additional common shares, options or warrants are issued at a price (or strike price) below the $18/share conversion price. In other words, this is not a floorless convertible or death spiral convertible or whatever you want to call it. It’s a fairly standard covertible issue.
There’s nothing nefarious going on. BAC will stand or fall on this one in direct proportion to Countrywide’s ability to stay in business and make money (or not). Theoretically, BAC can hedge away some of the principal risk, but if that were BAC’s real concern the transaction would have been structured differently. Clearly BAC believes – rightly or wrongly – that CFC’s stock will be higher at some point in the future. (Personally, I think BAC’s wrong. But that’s just my opinion.)
ParticipantI own a condo that (obviously) has an HOA. I’ve had no problems with it. I’ve done two fairly major projects, both of which I was supposed to get approval for. I blew them off. They know that I blew them off and they’ve done nothing about it, nor do they have any plans to. My logic is that as long as you’re doing something that the majority of the residents won’t have a problem with, you’re ok. And if the majority of the residents do have a problem with it, then it’s probably something screwy that you shouldn’t be doing anyway. Most HOA regulations are really just to keep the really crazy sh*t from happening. My thought process prior to my two projects was, “Is any resident of this building going to be bothered by what I’m doing here?” If the answer is “no” then it’s unlikely that the HOA is going to come after you about it. The reason is simple: Ultimately, the HOA represents the residents; if the residents don’t want the HOA to pursue something, they wont. It’s the residents’ money, after all. Just my 2 cents.
ParticipantI own a condo that (obviously) has an HOA. I’ve had no problems with it. I’ve done two fairly major projects, both of which I was supposed to get approval for. I blew them off. They know that I blew them off and they’ve done nothing about it, nor do they have any plans to. My logic is that as long as you’re doing something that the majority of the residents won’t have a problem with, you’re ok. And if the majority of the residents do have a problem with it, then it’s probably something screwy that you shouldn’t be doing anyway. Most HOA regulations are really just to keep the really crazy sh*t from happening. My thought process prior to my two projects was, “Is any resident of this building going to be bothered by what I’m doing here?” If the answer is “no” then it’s unlikely that the HOA is going to come after you about it. The reason is simple: Ultimately, the HOA represents the residents; if the residents don’t want the HOA to pursue something, they wont. It’s the residents’ money, after all. Just my 2 cents.
ParticipantI own a condo that (obviously) has an HOA. I’ve had no problems with it. I’ve done two fairly major projects, both of which I was supposed to get approval for. I blew them off. They know that I blew them off and they’ve done nothing about it, nor do they have any plans to. My logic is that as long as you’re doing something that the majority of the residents won’t have a problem with, you’re ok. And if the majority of the residents do have a problem with it, then it’s probably something screwy that you shouldn’t be doing anyway. Most HOA regulations are really just to keep the really crazy sh*t from happening. My thought process prior to my two projects was, “Is any resident of this building going to be bothered by what I’m doing here?” If the answer is “no” then it’s unlikely that the HOA is going to come after you about it. The reason is simple: Ultimately, the HOA represents the residents; if the residents don’t want the HOA to pursue something, they wont. It’s the residents’ money, after all. Just my 2 cents.
Participantcapeman,
Yes, you alluded to my point (“certain circumstances”): What are these “certain events”? We don’t know. I suspect that that’s just standard legalese referring to stock splits, special dividends, etc.
I’m familiar with “death spiral financing,” also known as “floorless convertibles” (because the conversion price has no floor) – they are one and the same.
It does not state in the filing that BAC can’t short CFC’s stock, but in fact they cannot. At least according to Angelo Moz in an interview regarding the deal. While I’m sure he’d lie about many things, I’m guessing that he wouldn’t lie about this as it’s pretty straightforward. I’m sure this information, and more, will be in the final filing on this deal.
Again, I think this is probably rearranging the deck chairs. But I don’t think there’s anything nefarious about this deal – if it goes south, I think BAC will ride it into the ground and take big losses. If BAC can’t short the common, it’s very difficult to properly hedge this bet, although perhaps they could buy long-dated puts. But as we know, the only perfect hedge is in a Japanese garden…
Participantcapeman,
Yes, you alluded to my point (“certain circumstances”): What are these “certain events”? We don’t know. I suspect that that’s just standard legalese referring to stock splits, special dividends, etc.
I’m familiar with “death spiral financing,” also known as “floorless convertibles” (because the conversion price has no floor) – they are one and the same.
It does not state in the filing that BAC can’t short CFC’s stock, but in fact they cannot. At least according to Angelo Moz in an interview regarding the deal. While I’m sure he’d lie about many things, I’m guessing that he wouldn’t lie about this as it’s pretty straightforward. I’m sure this information, and more, will be in the final filing on this deal.
Again, I think this is probably rearranging the deck chairs. But I don’t think there’s anything nefarious about this deal – if it goes south, I think BAC will ride it into the ground and take big losses. If BAC can’t short the common, it’s very difficult to properly hedge this bet, although perhaps they could buy long-dated puts. But as we know, the only perfect hedge is in a Japanese garden…
Participantcapeman,
Yes, you alluded to my point (“certain circumstances”): What are these “certain events”? We don’t know. I suspect that that’s just standard legalese referring to stock splits, special dividends, etc.
I’m familiar with “death spiral financing,” also known as “floorless convertibles” (because the conversion price has no floor) – they are one and the same.
It does not state in the filing that BAC can’t short CFC’s stock, but in fact they cannot. At least according to Angelo Moz in an interview regarding the deal. While I’m sure he’d lie about many things, I’m guessing that he wouldn’t lie about this as it’s pretty straightforward. I’m sure this information, and more, will be in the final filing on this deal.
Again, I think this is probably rearranging the deck chairs. But I don’t think there’s anything nefarious about this deal – if it goes south, I think BAC will ride it into the ground and take big losses. If BAC can’t short the common, it’s very difficult to properly hedge this bet, although perhaps they could buy long-dated puts. But as we know, the only perfect hedge is in a Japanese garden…
Participantcapeman, BAC is contractually bound NOT to short CFC’s stock over the 18 months following the deal. In addition, the 8-K filing doesn’t mention that this is a “floorless convertible,” as you’re suggesting. It merely mentions that the conversion price could be adjusted under “certain circumstances,” which we’ll find out about soon enough. (Might have “floorless” characteristics, might not – we don’t know yet.)
So, if you believe that BAC was “shorting CFC into the hole,” as you stated above, I believe you’re mistaken. And if you’re mistaken about BAC’s ability to short CFC’s stock (which is public information), you very well may have other aspects of this deal wrong as well.
If I’m wrong, please enlighten me.
Participantcapeman, BAC is contractually bound NOT to short CFC’s stock over the 18 months following the deal. In addition, the 8-K filing doesn’t mention that this is a “floorless convertible,” as you’re suggesting. It merely mentions that the conversion price could be adjusted under “certain circumstances,” which we’ll find out about soon enough. (Might have “floorless” characteristics, might not – we don’t know yet.)
So, if you believe that BAC was “shorting CFC into the hole,” as you stated above, I believe you’re mistaken. And if you’re mistaken about BAC’s ability to short CFC’s stock (which is public information), you very well may have other aspects of this deal wrong as well.
If I’m wrong, please enlighten me.
Participantcapeman, BAC is contractually bound NOT to short CFC’s stock over the 18 months following the deal. In addition, the 8-K filing doesn’t mention that this is a “floorless convertible,” as you’re suggesting. It merely mentions that the conversion price could be adjusted under “certain circumstances,” which we’ll find out about soon enough. (Might have “floorless” characteristics, might not – we don’t know yet.)
So, if you believe that BAC was “shorting CFC into the hole,” as you stated above, I believe you’re mistaken. And if you’re mistaken about BAC’s ability to short CFC’s stock (which is public information), you very well may have other aspects of this deal wrong as well.
If I’m wrong, please enlighten me.
Participantcapeman, I’m confused. Explain to me the “shorting opportunity on their investment.” If BAC wants to hedge their recent debt infusion they can use CDSs. If they wanted to short CFC’s common stock, they would have just shorted it, rather than going long convertible preferreds first. If BAC was truly bearish on CFC, there are much more efficient ways of making money on the situation than infusing debt and converts. I’d like to see your logic here.
That “they get preferred shares so they get the goods first in a liquidation” is factually correct but empirically naive. Go back and review the handful of situations from the last 10 years where a depository has failed and handed the keys over to the FDIC for liquidation, and tell me how much the preferred holders received. I’ll save you the work: less than 20 cents on the dollar on average. If you go back to the early 90s it’s less than 10 cents. Bottom line: preferred shareholders, for the most part, get wiped out when banks fail. BAC knows this. For whatever reason, BAC actually thinks CFC is going to survive and they’ll make money on this deal. I think CFC will survive but my guess is they get re-capped (again) at a lower price.
In any case, we’ll find out soon enough…
Participantcapeman, I’m confused. Explain to me the “shorting opportunity on their investment.” If BAC wants to hedge their recent debt infusion they can use CDSs. If they wanted to short CFC’s common stock, they would have just shorted it, rather than going long convertible preferreds first. If BAC was truly bearish on CFC, there are much more efficient ways of making money on the situation than infusing debt and converts. I’d like to see your logic here.
That “they get preferred shares so they get the goods first in a liquidation” is factually correct but empirically naive. Go back and review the handful of situations from the last 10 years where a depository has failed and handed the keys over to the FDIC for liquidation, and tell me how much the preferred holders received. I’ll save you the work: less than 20 cents on the dollar on average. If you go back to the early 90s it’s less than 10 cents. Bottom line: preferred shareholders, for the most part, get wiped out when banks fail. BAC knows this. For whatever reason, BAC actually thinks CFC is going to survive and they’ll make money on this deal. I think CFC will survive but my guess is they get re-capped (again) at a lower price.
In any case, we’ll find out soon enough…
Participantcapeman, I’m confused. Explain to me the “shorting opportunity on their investment.” If BAC wants to hedge their recent debt infusion they can use CDSs. If they wanted to short CFC’s common stock, they would have just shorted it, rather than going long convertible preferreds first. If BAC was truly bearish on CFC, there are much more efficient ways of making money on the situation than infusing debt and converts. I’d like to see your logic here.
That “they get preferred shares so they get the goods first in a liquidation” is factually correct but empirically naive. Go back and review the handful of situations from the last 10 years where a depository has failed and handed the keys over to the FDIC for liquidation, and tell me how much the preferred holders received. I’ll save you the work: less than 20 cents on the dollar on average. If you go back to the early 90s it’s less than 10 cents. Bottom line: preferred shareholders, for the most part, get wiped out when banks fail. BAC knows this. For whatever reason, BAC actually thinks CFC is going to survive and they’ll make money on this deal. I think CFC will survive but my guess is they get re-capped (again) at a lower price.
In any case, we’ll find out soon enough…
-
AuthorPosts
