Thursday, October 15, 2009

Georgia Gulf (GGC) Closes Down 8.5%

All it took was some blocks of 10,000-20,000 shares, with total volume of only 200k.

Digging through management's Q2 earnings presentation, I find that my capital structure/enterprise value calculation for GGC did not include $14.9 million in other long term debt plus a Lease Financing Obligation of $96.3 million.

That extra burden moves my GGC equity valuation target down to $0. I am shorting with impunity since I own OLN and GGC bonds as a hedge.

If the new shareholders' selling does not take the price down, or if they don't sell, I would expect the company to issue reams of equity. It would be good to continue de-leveraging.


eh said...

I cannot find shares to short at either of the places I have accts -- Etrade and Schwab. Which I guess makes sense if all those new shares are in the hands of the (former, I guess) debt holders.

Per the CBOE web site, the ('new' = GCP...?) put options are (all ask prices):

Nov 7.5 @ 6.8 (no open interest?!) Nov 5 @ 4.30
Nov 2.5 @ 1.80

Jan 30 @ 29.90
Jan 25 @ 24.90
Jan 20 @ 19.50
Jan 15 @ 14.50
Jan 10 @ 9.50
Jan 5 @ 4.40 (last trade 4.90, seems to have the biggest open interest)

You get the idea. With the puts already priced like this, and the stock trending down, I don't see how putting in some kind of limit order will do any good -- the puts are very likely going to stay extremely expensive.

You definitely made the right call on this. Good luck.

CP said...

I have essentially stopped buying put contracts as well. Certainly, only the 2.5 puts would make sense.

I am hoping that the March 2010 contract will be based on the new share price when it is rolled out. If that happens while the stock is still in the $20s, we will clean up.

I don't see why they wouldn't use the new stock price when those options come out. And it seems to me that the Mar contract should be rolled out when Oct expires. Although I am not sure how they come up with that schedule.

If you want to take advantage of the ideas on this blog, you need a better broker than ET or Schwab. You need to get with Thinkorswim or Interactive brokers.

PD said...

by far this is not an options trade.

if you want to short 100 new shares of GGC you need to buy 25 contracts. that is right 25 contracts. if you want to do a 1000 shares, you need to trade 250 contract, based on the open interest in the options market no body realizes this.

this is a great technical trade, that should manifest itself in a short time period.

CP said...

The options situation is really unfortunate. The only reason I own a bunch of contracts is because this is so, so overvalued.

But I am also short shares.

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