Latest and Greatest ($KV $AONE $GMXR $HOV)

KV said in its lawsuit that unless it is able to "immediately generate significantly higher market share and revenues from Makena than the current levels, the company will not be able to meet its cash obligations, and will run out of cash in less than three months from the date of this Complaint," which would be the first week of October. That even seems optimistic, and anyway they would be likely to file BK sometime before they literally ran out of cash. The FDA lawsuit that KV is banking on is not the clear winner that they need judging by the response by the FDA (e.g. "more time spent on pharmacies compounding 17-HPC means less time spent pursuing enforcement actions in other areas"). I would obviously expect the stock to collapse to ~0 in the event of a BK filing.

The AONE bonds are down to 20 cents (and they have issued new "debt" where the payments are made with stock), and the company had previously said that "as of May 31, 2012, the Company expects to have approximately four to five months of cash to support its ongoing operations." That suggests that sometime around August/September the company will need to do something dramatic, which would be good for the debt/equity trade. I continue to wonder how the $163 million of 2016 notes only be worth $35 million according to the bond market - yet the company has a market cap of over $100 million? Aren't both the notes worth significantly more and the stock worth significantly less? I think they should be looking at a debt/equity swap right now for all their existing unsecured debt. They would be in a much better position to survive with less leverage. Ultimately though, they are probably a goner no matter what as Vinod Khosla has said. The best outcome would be for the company to liquidate and distribute proceeds to bondholders, as ENER did.

The big catalyst for GMXR is the bond maturity in February. That bond is trading at 69 and the 2015 unsecured is trading around 40. The well results in the Bakken have continued to come in poorly. They tend to be pretty opportunistic about debt/equity swaps and I'm sure they would rather spend money on drilling than on principal repayments to bondholders. The market cap is $60 million, which is more than the market value of the debt due in February. I would look for them to try to repay the February maturity in stock (via swaps) rather than cash. That will obviously be good for the long debt/short equity trade. Also, the company announced that they will release 2012 second quarter financial and operational results after the close of trading on the New York Stock Exchange on Wednesday, August 8, 2012.

Last is HOV, which has been trading stock for the bond that we own. It's nice to know that the company agrees that the bonds are a better value than the stock. I'm looking for continued swaps to put a ceiling on the share price while increasing the price/expected recovery of our bond. I've previously mentioned "impediments [which] will affect the home builders going forward (significantly higher-than-average vacancy rates, legacy land positions with subpar gross margins, competitive land market in attractive locations, rising labor/material costs, potential new home-builder entities with stronger balance sheets...)." Today I see a smart observation, that "the market may come to the realization that a sizeable portion of the land left on the balance sheet is: 1) Not in a desirable area despite the uptick in new-home demand; 2) Land that needs major improvement but does not yield an adequate gross margin at today's home prices after the necessary development spend."