After the big selloff on Friday when the registration statement for 30 million new Georgia Gulf (GGC) shares was approved, trading has slowed down, and the stock is hovering around 15.
It seems like some of the bond funds haven't decided to sell their new shares yet. But I see two catalysts for another sharp move lower in the stock
First, GGC will be releasing third quarter earnings Wednesday at 5:00 PM ET. Competitors PPG
and Olin (NYSE:OLN
) both announced disappointing chlor-alkali results. I don't see how GGC could have done better. I do not expect GGC to meet management's 2009 EBITDA target, which would make it a stretch for GGC equity to be worth anything.
Second, I wouldn't be surprised if GGC attempts to issue stock. Raising equity at these prices and de-leveraging the company would make great financial sense. There are about $40 million of the subordinated notes outstanding which they could buy at 15-20% yields.
Author's Disclosure: I am short GGC and long GGC debt and long OLN.
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