credit facility question

Discussion in 'Trading' started by NY_HOOD, Jul 11, 2007.

  1. i've looked on google and cannot find a good answer. what is the difference between a credid facility,shelf offering,and when a company offers a convertable?
    not being lazy guys,i really cannot find anything useful on google.thanks
     
  2. empee

    empee

    shelf offering means that they have it ready to go (sell stock) at anytime so its on the shelf..ready to go. They are selling stock for a price, and thus dont have to pay any money back.


    a credit facility is a loan. You have to pay it back.
     
  3. do shelf offerings cause a stock to go down? how bout a credit facility?
     
  4. timmyz

    timmyz

    the relationship between a credit card and individual person

    is very similar to

    the relationship between a credit facility and a corporation.

    if a firm has a $200 million credit facility, it means it means the bank has already approved $200 million worth of borrowings.

    if the company is doing well financially, the credit facility has no bearing on the stock price at all. if the company is distressed, then the credit facility is very important. usually, if the bank is willing to relax the terms of the facility or increase the amount, it means the company has access to more cash and can live longer. otherwise, it's going into chapter 11.
     
  5. so its not dilutive? how bout the shelf offering,idoes that cause a stock to go down? what about a convertible offering? what the hell is that?
     
  6. timmyz

    timmyz

    when you say dilutive, i'm assuming that you mean more shares are issued. in this sense,

    a credit facility is not dilutive.

    a shelf registration is dilutive only if the shares are eventually issued. a shelf registration means the company has already completed all the legal and regulatory documents to issue the shares. it doesn't mean that the shares are issued and outstanding. when the company wants to issue the shares, it can do so quickly because all the regulatory documents are done.

    a convertible offering is an issuance of convertible bonds. convertible bond holders have the option of converting the bonds into shares after a certain date using a certain strike price. it is dilutive if the current share price is higher than the current strike price.


     
  7. thank you very much.appreciate it.
     
  8. real quick,although a shelf offering does not mean the company will issue more shares,does the share price usually drop on this news?
     
  9. timmyz

    timmyz

    in terms of economics, there should be no effect. although the firm is issuing more shares, the firm is also getting more cash from the share issuance. therefore, both the numerator and denominator increases. they net each other out.

    price per share = equity value / # of shares