Friday, September 16, 2011

Energy Conversion Devices ($ENER) Files Form 8-K: Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

Today was an odd day in Energy Conversion Devices (ENER) common stock. It rallied out of the gate and then there was a huge superspike up at 2pm, of the type that you often find in worthless stocks. The superspike deflated and then after hours the company put out a Form 8-K regarding its failure to satisfy NASDAQ continued listing requirements:

"On September 15, 2011, Energy Conversion Devices, Inc. received a deficiency letter from The NASDAQ Stock Market notifying the Company that it no longer meets NASDAQ’s requirements for continued listing on the NASDAQ Global Select Market... because the minimum bid price of the Company’s common stock has not equaled or exceeded $1.00 at least once over a period of 30 consecutive trading days. [...] The Company intends to actively monitor the bid price of our common stock and will consider available options to resolve the deficiency and regain compliance with the NASDAQ requirements. Such actions could include implementation of a reverse split of the Company’s common stock, which would need to be authorized by the Company’s stockholders, or other possible actions."
Not accusing anyone of anything, but I remember trading another now-bankrupt solar stock that it was uncanny how often there would be a huuuge rally followed by a bad news release. It got to the point where you could be highly confident that rallies meant bad news.

There is a capital structure arbitrage opportunity in ENER, because the company's 3% convertible notes due 2013 trade at ~47 to yield over 50% to maturity! Also, the company has a cash balance that is greater than the current market value of the convertible notes, meaning that the note price implies a negative enterprise valuation.

In contrast, the eight-figure market capitalization implies a much higher enterprise valuation. The prices of these two parts of the capital structure certainly seem to be inconsistent, which would indicate an arbitrage opportunity.

Also worth noting is that the convertible notes traded higher volume today but didn't so much as break the 50 price level where they were only about a month ago. I imagine that arbs were buying the notes and shorting the stock today.

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