I have follow up questions on your June 19 response to Scott. I am not a shareholder and not planning on becoming one - Just curious about the next steps following the defaults.
You mentioned the convertible holders may issue stock causing massive dilution. It is essentially a takeover to take control of the asset disposition process and negotiation with the 1st mortgagees.
Are debentures always convertibles?
I presume the 1st mortgagee for each property owned will also send their notice of default and ask for repayment / start the foreclosure process. Is that correct and do the convertible owners have any remedy to try protecting the remaining equity?
Just looking for your general comments to understand next steps. Thank you for your great service.
Just to clarify, it is not the convertible holders that convert, as the conversion price is well above the market price. It is the company exercising its right to pay off the debentures in stock because it does not have the capacity to redeem them in cash. 99.5% of convertible debentures give issuers this right. Non-convertible debentures do not have this ability, but companies in trouble can still call a meeting of debenture holders and ask for concessions such as this, or extend maturities etc. These would need the debenture holders' approval but usually the alternative is bankruptcy so deals are usually done. But for convertibles the company has the right to pay off all interest and principal in stock. The convertible deb. holders rank below the mortgages of course, and do not really have any way of protecting their interest in such cases. They typically end up with stock, and then they often try to sell the stock as fast as possible, which of course makes things worse for the stock price.