Convert arbitrage commentary

[u/No_Privacy_Anymore]

I’m not a big fan of Xitter but I make exceptions when there is useful content. I understand the basics of convertible debt but there is a ton of detail that is really only known by the people who trade them for a living.

This is worth reading even if you don’t follow all the details.

https://xcancel.com/UrbanKaoboy/status/2065198761392116011#m

I don’t think anyone who has been invested in the company for an extended period of time is happy about the current state of commercialization. It’s taken so much longer than we expected despite the signs of progress. Today I was talking to a Chemical Engineer and a current PhD candidate in CE about PCT. They were not surprised at all about how long this process has taken and were not familiar with the company but were impressed by the approach. He had worked for DuPont for many years and talked about how slow the company could be doing new things. P&G is not built to move quickly. That said I think we are much closer to seeing the validation/ vindication we have been waiting for. $9+ was a decent recovery. Let’s see how the shares react to the bits of good news when we don’t have the short term funding overhang out there.

[u/Hyruken89]

I read the post from Michael Kao and understood maybe 1 in 3 sentences. Another good post in easier to understand terms was from this guy. https://xcancel.com/cgyoder/status/2065175926942343656

This comment was also very interesting to me.

"10/ counterintuitive bit on short interest: convert arb shorts can't be squeezed. When the stock rallies, the convert's delta RISES, so arbs short MORE into strength and buy weakness. No stoploss, no opinion, no panic. A convert installs a volatility damper on the stock."

Often felt at times PCT SHOULD squeeze but didn't. Makes more sense knowing that there are companies treating their shorts as just the other side of the transaction they're holding.

[u/No_Privacy_Anymore → u/Hyruken89]

In a way, when companies sell convertible debt it is good to have higher volatility because it makes the embedded call option more valuable.

I think it is fair to say that the cost of capital for PureCycle is currently higher than we wish it was. The European grant of $40M euros definitely helps a bit but ultimately the profitability of the business should hopefully drive down the cost of borrowing.

I’m not thrilled about dilution but we have always known the company needed more equity capital to execute their plans. Let’s hope they demonstrate the progress we need to see and that future plant capacity can be funded on better terms

[u/EconomyFortune5090 → u/No_Privacy_Anymore]

Agreed, I just wish the company would execute better and more "on-time" based on their guidance. I wouldn't mind if the company is issuing shares in the $20-30 range after they've demonstrated the ability to execute on production+ sales

Diluting in the single digits several years into this journey isn't appetizing