On Wednesday, the S&P 500 was up 0.5% and Toronto was up 0.1%.
It was a strong day for Melcor, which rose 2.0% to $26.93 on higher-than-normal volume. Melcor announced today that it would redeem some convertible bonds that it has outstanding which are now well into the money. The bonds convert at $18.51. I am not sure if this had anything to do with the price rise today. In fact I would have though it might have a small negative effect.
It’s interesting that the bond holders have until August 7 to convert at $18.51. IF they fail to instruct their broker to take the conversion at $18.51, then the bonds automatically covert on August 8th at 95% of the average trading price in the previous 20 trading days. Based on today’s price the forced conversion might be at about $25.60. In that case investors would be FAR better off to take the conversion at $18.51. I find it disappointing that Melcor has issued a press release that technically gives the facts but omits the simple observation that if the 20 day average price is higher than $19.48 (which seems all but certain) then the convertible bond holders are better off converting at $18.51 rather than taking he default conversion. Every company seems to do this sort of thing. That is, they issue a press release that meets the legal requirements but omit plain language and common sense advice. And they probably could make the default option the $18.51 but they do not appear to be doing that.
Basically the result is that if you get a “corporate action” notice about things like this you as an investor have to take the time to understand the best option.
In the case of Melcor however, the convertible bonds do not appear to trade and were issued on a private placement basis. So, perhaps everyone that owns them would be sophisticated and would know they should convert at $18.51. Perhaps the press release was not directed at the bond holders but was more so to let the public shareholders know about this. If that is the case and the private holders of the convertible bond were notified to convert then perhaps my concern about the press release wording is misplaced.