brikk, Indeed. Trying to understand this from Prospect's view, two possibilities I see here for those shares: 1. Prospect went short somewhere around $1+ knowing they had shares to cover with. This was a way to hedge their 2.6M long position so that their downside was virtually limited to 0, IMO. It also limited their upside - but I think they were already raving about the returns and were quite happy to lock it in. On a $.50 drop in PPS they would have pocketed around $1.3 M on 2.6M shares plus $1.8M on covering around $.65 (with a cost basis of 0), netting around $3M+. How the MM's would have benefited and if they colluded is uncertain. http://www.reuters.com/article/pressRelease/idUS136121+10-Jun-2008+MW20080610
2. If Prospect was in a hurry to cash out but maybe wanted to wait till Q3 to show the income, August 1st would be the earliest they could sell. MM's would get Prospect's shares into the inventory on Prospect selling. An MM that had the knowledge that Prospect was going to sell could have shorted down to the .60's knowing they'd get shares to cover with. Prospect would have cashed out for about $1.8M.
Possibility 1 seems more likely to me. All IMO. Either way, if I were to ask why Prospect didn't stay Long, their core business is about providing capital at a high interest rate and I'm sure they can turn around and lend the realized gains as capital (at a high rate) to another Co that needs it. I'm just trying to understand this myself - I'm sure there are other better explanations of what transpired.
brikk, what are your thoughts on the exercise date and price for the Prospect warrants. I was under the impression they couldn't exercise them until Aug '09. Also, a cashless exercise on July 3rd at .507 should have given them less than 2.6M shares based on the trading range for that day. Was the going price decided ahead of time?
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