Convertable debentures are debt that has an option attached for the holder to convert it into stock if the stock price hits a certain level. Strong companies often avoid these, because they have to pay out more to pay off the debt than the debt was issued for if the stock does well.
However, the conversion factor is a good sweetener if the interest rate without a covertable option is too high for the company to afford. It can often get a lower interest rate by giving debt holders the unlimited upside of a conversion right. Think of it this way, I borrow $100 bucks from you, but as part of the contract, if my stock hits $105, you can trade your $100 in debt for $105 in stock. So you get the interest payments on $100 in debt until you convert, then you get an extra 5%, so your effective interest rate could be over 10%. Good for you, bad for me, 'cause I'd rather pay just interest.
The market sure didn't like this issuance, though, the stock went down significantly. The risk factors (see "pimp-slapped" topic) listed on the offering sounded like they got together to build a war-chest right after SWA announced Denver, they sound like theyr'e going to need lots of cash, which makes the debt more risky.
We'll see, but I think the market smells blood in the water.
Remember what AMR and DAL stock sold for back in '00? Sorry, but efficient market theory is all but debunked, so saying that the market smells blood in the water is really irrelevant. Investors are morons and act on emotion rather than facts. I don't think F9 is in any real trouble at this point. Their balance sheet looks pretty good considering the industry they're in.
