Hello - the face value or redemption value of the C shares is $2 per share. The par value for the C shares and the common shares is the same at .000001. In our case, the calculation of a conversion has two stages:
First, take the face value of the thing you want to convert (e.g. a C share at $2) and divide it by the par value of the thing you are converting it into (e.g. the par value of the common shares .000001). So, 2 divided by .000001 equals 2M common shares.
Second, apply a conversion rate if there is one. For most of the history of HIMR's C shares, there has been a discretionary conversion rate to apply. That conversion rate has almost always been .5, so most conversions have been 2 divided by .000001 multiplied by .5 equals 1M common shares. None of the disclosed conversions have been higher, although I recall one being lower.
However, in the last Q (Q3 2013) the stated conversion process changed. It there said it was a fixed conversion. So since 9/30/13, the conversions would have been one C share converts to 2M common shares. Or so it seems to me. I have never seen mention in the disclosures of any ratio to be applied in the converting of the C shares, though that may change. To speculate, the change was probably a condition of retiring most of Hayward's shares. So, the conversion rate got worse and they are now announcing the intention to change it in a significantly shareholder friendly way.
In the PR they make reference to wanting to get the "intrinsic value" in line with market value. Although in a common sense way "intrinsic value" might seem equivalent to face value, 'intrinsic value' seems to have a technical meaning which can be partially subjective in that the investors goal may determine a metric. I think we just have to wait to see how it sorts out.
The PR is good news, but occurs in a context where the dilution may be worse than some assume. If HIMR simply remains dedicated to avoiding an R/S and to doing buybacks as the capacity to do so improves, we should be fine. Also, we should keep in mind we don't know how many treasury shares they have. They are required to hold some treasury shares to cover some proportion of conversions for the convertible obligations they have. As they gradually move beyond the convertible obligations, they will also move beyond they need to hold those treasury shares and many of those can be retired.
So, they might lower the par value on the common and/or introduce a conversion rate or ratio to apply - just have to wait and see. A good PR, but I would like one about friendly financing.
First, take the face value of the thing you want to convert (e.g. a C share at $2) and divide it by the par value of the thing you are converting it into (e.g. the par value of the common shares .000001). So, 2 divided by .000001 equals 2M common shares.
Second, apply a conversion rate if there is one. For most of the history of HIMR's C shares, there has been a discretionary conversion rate to apply. That conversion rate has almost always been .5, so most conversions have been 2 divided by .000001 multiplied by .5 equals 1M common shares. None of the disclosed conversions have been higher, although I recall one being lower.
However, in the last Q (Q3 2013) the stated conversion process changed. It there said it was a fixed conversion. So since 9/30/13, the conversions would have been one C share converts to 2M common shares. Or so it seems to me. I have never seen mention in the disclosures of any ratio to be applied in the converting of the C shares, though that may change. To speculate, the change was probably a condition of retiring most of Hayward's shares. So, the conversion rate got worse and they are now announcing the intention to change it in a significantly shareholder friendly way.
In the PR they make reference to wanting to get the "intrinsic value" in line with market value. Although in a common sense way "intrinsic value" might seem equivalent to face value, 'intrinsic value' seems to have a technical meaning which can be partially subjective in that the investors goal may determine a metric. I think we just have to wait to see how it sorts out.
The PR is good news, but occurs in a context where the dilution may be worse than some assume. If HIMR simply remains dedicated to avoiding an R/S and to doing buybacks as the capacity to do so improves, we should be fine. Also, we should keep in mind we don't know how many treasury shares they have. They are required to hold some treasury shares to cover some proportion of conversions for the convertible obligations they have. As they gradually move beyond the convertible obligations, they will also move beyond they need to hold those treasury shares and many of those can be retired.
So, they might lower the par value on the common and/or introduce a conversion rate or ratio to apply - just have to wait and see. A good PR, but I would like one about friendly financing.
