Over the past year, bears have built up a huge short position in Amyris(AMRS). Short interest has risen from around 3M shares short to over 17M shares short.
There are also quite a few naked short sellers, as evidenced by Amyris appearing on the Reg SHO list. I've heard estimates of up to 30M shares total being sold short, but for the purpose of this article I will stick with 17M, which is the verifiable minimum. Given that the short interest is that high, borrowing rates for the stock have risen over 75%.
The smart short sellers were the convert holders. Their plan made total sense - short the stock, receive more shares from the conversion, and cover their short position. It didn't seem possible to the bears that Amyris would pay the debt in cash.
However, Amyris is doing just that. Though the mechanism is not entirely non-dilutive: a part of the payment comes from a new equity investment by John Doerr. But this dilution is not at all the same as issuing new shares to short noteholders. John Doerr holds his shares for years, and they will not be added to the float.
So now we are in a situation where the total float is around 20M shares (most of the AMRS shares are owned by large strategic shareholders), and the bears are short over 17M shares. There are no shares coming from converts and the bears have to pay over 75% interest to maintain their position. The May debt will be paid by the cash received from the DSM transaction, and I see no further bearish catalysts in the near future (we've had a few of those in the past couple of months, though). Moreover, as the stock goes higher, Amyris will get an influx of cash from the warrants, which should support the company until the big money from the CBD deal comes in.
The way I see it, the bears are trapped. Those who run to exit first may get out intact, but when the stampede starts, it isn't going to be pretty for the bears. The stock gapping up on the debt resolution news is supporting my theory.
I will note that some of the Seeking Alpha bears are betting on bankruptcy (see here, here and here). I think that they are very misguided. Referring to John Doerr, one of the most successful tech investors of all time as a "baggie" seems to me the height of arrogance. I think that these particular bears are in for a very rude awakening, though I will be glad to hear what they think of Amyris paying down its debt in cash in the comments.
Disclosure: I am/we are long AMRS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not a registered financial adviser, and this is not financial advice. Please conduct your own due diligence and contact a financial adviser before making investment decisions.