Monday, October 5, 2009

Current Georgia Gulf (GGC) Holders

I forgot to mention in the report - the new equity is owned almost entirely by bond funds that exchanged their notes for equity in the restructuring.

In exchange for each of the 2013 notes and 2014 notes, the holders got 47.30 shares of convertible preferred stock and 2.11 shares of common, and in exchange for each of the 2016 notes, holders got 18.36 shares of convertible preferred stock and 0.82 shares of common. So that's 49.41 shares for the senior notes and 19.18 shares for the sub notes. Which is worth 1432.89 and 556.22.

At current equity trading price they have totally lucked out on the junk debt they originally bought. The seniors got a huge windfall - even if they paid par! They'd be crazy not to sell.

The company filed an S-1 registration statement on September 25. So my understanding is that the SEC needs to approve, and then these shares can hit the market.

Now the question is: are these bond funds going to hold these overpriced shares or dump them ASAP? And, what is going to happen when they go to sell 30 million shares of a stock that trades 350,000 a day? (Only 46,000 today! This is going to dump so fast it'll make your head spin.)


eh said...

I like your logic here, but I must point out two things:

1) In the opinion of many, the market (its participants) has (have) not been behaving rationally for some time;

2) That can continue until you're broke.

I will put in an order to short GGC today just to see if they (Schwab) will at least make an effort to find the shares (on the order confirmation page they tell you if it's shortable).

But in general I have learned to be wary of these thinly traded stocks. Not to mention it is already fairly heavily shorted.

CP said...

This is all true; however, that is why my two favorite trades right now (REG v REG-E and GGC v OLN) are pairs that are very well hedged.