Energy Conversion Devices Inc.

  • 20 Aug 2013 at 11:40 AM

Happy Meal Convertible Offerings Make People Angry

It is not every day that the Wall Street Journal has a front-page article about “happy meal” convertible offerings with registered stock borrow facilities so I’m going to tell you about them. Here is what they are:1

  • A company sells a convertible bond to convertible arbitrageurs.
  • At the same time, it lends shares of its own stock to the arbs so they can establish their hedge for the convertible.

As the Journal points out, these deals go pear-shaped with horrific frequency – a third of them go bankrupt within five years, versus 7% of all convertible issuers.2 And now people are all mad and suing and stuff, and there are insinuations that evil hedge funds made lots of evil money on these evil deals. All of this is very confused so let’s talk about it in excruciating detail shall we?

First of all: are these deals bad for companies, or are bad companies doing these deals? The Journal: Read more »