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China Security & Surveillance: Whitehorse Deal a Bullish Sign

If it sounds too good to me true . . . it might be. Given the recent drop in stock price, the loan is approaching a potential default just weeks after issuance.

The 13D filed on January 30 indicates the risk being taken with this loan. In particular, exhibit 2. This shows what may be a troubling issue regarding the loan. The value of Mr. Tu's collateral must be 300% or more of the $50m loan. Thus, given the 8.75m shares he owns at current prices being worth $121, he must post an additional $29m of collateral. While this is based on a ~20 day average price, it suggests that were the stock price to stay below $17.10, he'd have to post more collateral and below $13.42, he wouldn't have enough stock to avoid default on the loan. This is a real stretch, but should the loan be defaulted on, the lender would get all of the stock, and given the collateral would still be worth close to 300% of the loan, the lender would very likely sell the stock immediately and still book a gain regardless of how much damage it caused the stock.

Comtech Comes Through With Big Contract Wins

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