Tuesday, November 3, 2009

Watch Out for Georgia Gulf (GGC) Earnings Tomorrow

After the big selloff on Friday when the registration statement for 30 million new Georgia Gulf (GGC) shares was approved, trading has slowed down, and the stock is hovering around 15.

It seems like some of the bond funds haven't decided to sell their new shares yet. But I see two catalysts for another sharp move lower in the stock.

First, GGC will be releasing third quarter earnings tomorrow at 5:00 PM ET. Competitors PPG and OLN both announced disappointing chlor-alkali results. I don't see how GGC could have done better. I do not expect GGC to meet management's 2009 EBITDA target, which would make it a stretch for GGC equity to be worth anything.

Second, I wouldn't be surprised if GGC attempts to issue stock. Raising equity at these prices and de-leveraging the company would make great financial sense. There are ~$40 million of the subordinated notes outstanding which they could buy at 15-20% yields.


eh said...

Defying gravity at the moment.

It's a rock and a hard place for big holders who got those shares via the debt swap -- they know selling en masse will crash the share price.

They should talk to the guys who manipulated GRT on Monday; seemingly an expert job there (click on my moniker).

eh said...

Who would be stupid enuf to buy the shares?

CP said...

Hopefully tonight's earnings will prompt another selloff.