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Risk-Arbitrage Opportunity in DFC Global Buyout
The financial services company is selling itself to a private-equity firm, presenting an opportunity for traders.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Risk-arbitrage traders have a new deal today. DFC Global (NASDAQ:DLLR), the banker to the unbanked, is facing a big debt load, regulatory issues, and markdowns in its gold assets and has agreed to sell itself for $9.50 per share to a private-equity firm. This is a long way below levels the stock once inhabited, although it's about 50% above February's low. In the pre-market, the stock had been bid slightly above the deal price in hopes that another buyer will materialize.

The real winners this morning own DFC Global 3.25% convertible bonds. These bonds had several other pieces of debt due in front of them, but an acquisition effectively equalizes all of the bonds. These were quoted around $0.85 on the dollar before the announcement, which had amounted to a 9% yield to the bonds' 2017 maturity. DFC Global has three convertibles outstanding -- since the buyout is a cash deal, the "poison put" feature requiring the buyer to redeem the convertibles at par appears to be invoked. The other issues were quoted in the low-to-mid-90s before the deal, so the gain is substantially less.

Accordingly, holders of the 3.25% notes appear quicker to take profits this morning, and the bonds are now offered below $0.98 on the dollar.  Investors getting the bonds at, say, 97.5 this morning would make an annualized return of around 8.5% if the deal closes in six months. That's a lot better than the return shareholders buying the stock this morning will get unless a higher bid materializes.

One possible concern for arbitrageurs considering playing the deal via the convertibles could be a competing bid using stock instead of cash as merger consideration. If this happens, although stockholders would likely benefit, the poison put would likely not be invoked, and the convertibles would likely fall back to a price in the low 90s.

But traders who think the announcement earlier today is a "done deal" should take a long look at DFC Global's convertibles at current levels.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

Risk-Arbitrage Opportunity in DFC Global Buyout
The financial services company is selling itself to a private-equity firm, presenting an opportunity for traders.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Risk-arbitrage traders have a new deal today. DFC Global (NASDAQ:DLLR), the banker to the unbanked, is facing a big debt load, regulatory issues, and markdowns in its gold assets and has agreed to sell itself for $9.50 per share to a private-equity firm. This is a long way below levels the stock once inhabited, although it's about 50% above February's low. In the pre-market, the stock had been bid slightly above the deal price in hopes that another buyer will materialize.

The real winners this morning own DFC Global 3.25% convertible bonds. These bonds had several other pieces of debt due in front of them, but an acquisition effectively equalizes all of the bonds. These were quoted around $0.85 on the dollar before the announcement, which had amounted to a 9% yield to the bonds' 2017 maturity. DFC Global has three convertibles outstanding -- since the buyout is a cash deal, the "poison put" feature requiring the buyer to redeem the convertibles at par appears to be invoked. The other issues were quoted in the low-to-mid-90s before the deal, so the gain is substantially less.

Accordingly, holders of the 3.25% notes appear quicker to take profits this morning, and the bonds are now offered below $0.98 on the dollar.  Investors getting the bonds at, say, 97.5 this morning would make an annualized return of around 8.5% if the deal closes in six months. That's a lot better than the return shareholders buying the stock this morning will get unless a higher bid materializes.

One possible concern for arbitrageurs considering playing the deal via the convertibles could be a competing bid using stock instead of cash as merger consideration. If this happens, although stockholders would likely benefit, the poison put would likely not be invoked, and the convertibles would likely fall back to a price in the low 90s.

But traders who think the announcement earlier today is a "done deal" should take a long look at DFC Global's convertibles at current levels.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

Daily Recap
Risk-Arbitrage Opportunity in DFC Global Buyout
The financial services company is selling itself to a private-equity firm, presenting an opportunity for traders.
Bill Feingold    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Risk-arbitrage traders have a new deal today. DFC Global (NASDAQ:DLLR), the banker to the unbanked, is facing a big debt load, regulatory issues, and markdowns in its gold assets and has agreed to sell itself for $9.50 per share to a private-equity firm. This is a long way below levels the stock once inhabited, although it's about 50% above February's low. In the pre-market, the stock had been bid slightly above the deal price in hopes that another buyer will materialize.

The real winners this morning own DFC Global 3.25% convertible bonds. These bonds had several other pieces of debt due in front of them, but an acquisition effectively equalizes all of the bonds. These were quoted around $0.85 on the dollar before the announcement, which had amounted to a 9% yield to the bonds' 2017 maturity. DFC Global has three convertibles outstanding -- since the buyout is a cash deal, the "poison put" feature requiring the buyer to redeem the convertibles at par appears to be invoked. The other issues were quoted in the low-to-mid-90s before the deal, so the gain is substantially less.

Accordingly, holders of the 3.25% notes appear quicker to take profits this morning, and the bonds are now offered below $0.98 on the dollar.  Investors getting the bonds at, say, 97.5 this morning would make an annualized return of around 8.5% if the deal closes in six months. That's a lot better than the return shareholders buying the stock this morning will get unless a higher bid materializes.

One possible concern for arbitrageurs considering playing the deal via the convertibles could be a competing bid using stock instead of cash as merger consideration. If this happens, although stockholders would likely benefit, the poison put would likely not be invoked, and the convertibles would likely fall back to a price in the low 90s.

But traders who think the announcement earlier today is a "done deal" should take a long look at DFC Global's convertibles at current levels.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

 

 

 

 

 

 

 

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