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Lares Capital, a long/short fund that specializes in small caps, option strategies, and low-liquidity equities. The fund invests in both domestic and foreign securities. You can contact us at sa@larescapital.com.
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  • JBLU - My Quick Take On Its Fall 0 comments
    Mar 29, 2012 1:03 PM
    Jet Blue is down over 7% today on heavy volume. The catalyst for this move is not bad publicity from a pilot's "medical" episode two days ago. Lufthansa, which currently holds 15.9% of Jet Blue, is planning to issue convertible bonds where the "kicker" is its Jet Blue stake:

    According to WSJ:

    "Deutsche Lufthansa AG (LHA.XE) said Thursday unit Lufthansa Malta Blues LP is planning to issue bonds maturing in 2017 which can be converted into up to 46.7 million JetBlue Airways Corp. (NASDAQ:JBLU) shares. "

    Doing a quick calculation:

    282.07 JBLU shares outstanding, 46.7 possible dilution in case of a conversion amounts to around 16%.

    Therefore, Lufthansa is essentially planning to sell a covered call on JBLU with an exercise date around 2017 (just a guess since no details are available yet).

    There are possible explanations: it needs money it can't easily raise with its Debt/Equity at 2.5, it doesn't think JBLU will appreciate much over next 5 years.

    Stay tuned. But my guess it's a former since the bonds will be privately placed.

    Disclosure: I am long JBLU.

    Additional disclosure: I'm also short JBLU call options.

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