ANI Pharmaceuticals (ANIP)

[LordDarley]

In December 2014, ANIP sold $125M of convertible debt. Interest was semiannual and cheap (3%) but the hook was the conversion feature. Some of the debt has been redeemed already, but there's roughly $115M outstanding and it comes due December 1. It will then be worth the greater of the cash due or the number of shares that cash would buy at $69.48/share, roughly 1,655,000 shares.

You may wonder why ANI always has such a large short position, recently 1,500,000 of the 12M shares. Much of that has to be the convertible debt holders selling short without risk, and this is typical for small companies which are forced to issue convertible debt to get money in their early days.

The debt holder sells shares short and is in a can't lose position. If the stock goes down, he can buy back the shares at a lower price and make money. If the shares go up, he has no financial risk, because he has a conversion right at $69.48/share.

That game is coming to an end on December 1, because ANIP has credit lined up to pay back the cash. It then gets more interesting. ANIP doesn't want to issue 1,655,000 shares at $69.48, because that's way under what the shares are worth and would dilute current owners by about 12%. Read the next post and I'll tell you more, and you'll see why the unwinding of these transactions practically guarantees a higher stock price unless there is some really adverse business news, (like everyone dying in the recently announced Corti test).