YLO Preferred C and D time arbitrage (60 Days)

The mechanics are simple. There will be a dividend paid to C and D in cash when A and/or B are converted. Thus, the earliest conversion date to convert A and B is June 30th at which point 2 dividends are in arrears.

Here is the idea. Pay <$0.70 today to own Preferred C and D shares. Get paid a $0.84 dividend minimum sometime between June 30th 2012 and December 31st 2012. Keep your preferred and see if it rises to par value of $25. Note, you paid $0.70 to own it.

The idea is this, YLO more or less has to convert A’s and B’s to common. On conversion, this triggers a payment of dividends across the preferred classes. The earliest they can convert the B’s is June 30th 2012. In my discounted cash flow analysis, I found that the company either:
1. Has to convert the A’s.
2. Has to refinance their debt.

Either way you win big on the C’s and D’s.

So, what am I missing here? I’m open for suggestions or ideas but this looks eerily close to a risk free return of your cash with over 4000% upside. Please contact me if you can see flaws in my logic.
Two dividends on the C’s and D’s is around $0.84. So, if you can buy for $0.70 today and get a cash dividend of $0.84 on June 30th, you have a risk free return of your capital. Beyond that, there is the upside to par value of $25 and additional dividends. Just saying.

I think that I might have found something. Upon further investigation of the terms of the C and D shares, I believe that the mechanics of the situation will lead the company to pay out a dividend to them of $0.84 around June 30^th. Right now, the price of the shares is $0.70 or less. That and I believe that the preferred shares are worth $25.

So, this appears to be a risk-free return of your money with an attached potential upside of 4000% return. $31 / $0.70 is the math for the upside.

I can’t figure out what I might be doing wrong? I think that this might be something that it would be worth having a lawyer look into.

The Series 3 Preferred Shares will be entitled to fixed cumulative preferential cash dividends, as and

when declared by the board of directors of YPG Holdings (the “Board of Directors”), payable quarterly on

the third last business day of each of March, June, September and December at an annual rate of $1.6875

per Series 3 Preferred Share for the initial five-year period ending on September 30, 2014

On and after June 30, 2012, YPG Holdings may, at its option, upon not less than 30 days and not more than 60 days prior written notice,

redeem for cash the Series 2 Shares

So this means that the B’s are not convertible till June 30^th but the C’s and D’s get their dividend paid out June 27^th. So, it is my understanding that the A’s and B’s will likely be converted to common, with an announcement coming as early as tomorrow. Upon conversion, per my discussions with the company, all preferred share class’s dividends in arrears will be paid out.

so, what this purchase gets me… for 63 cents, i paid $944. I will get 1500*0.84 in dividends when the a’s are converted, probably after june 30th along with a potential conversion of the b’s, so i paid $944 and i’ll get a dividend of $1260.

Then, I get to keep free preferred shares

this goes to show how much fear and panic there is out there right now. people are selling the preferreds at less than the dividends that they are going to be forced to pay by EOY.

Glen

Look at the comparables: DEXO, SPMD, PAJ, YELL.LON, etc.

Can we agree that both equity and credit analysts hate phone books? Can we agree that everyone is scared?

Can we agree that markets are not rational and are occasionally susceptible to bouts of irrationality? IF we can’t agree on those, then this argument is stuck in dead water, but when I bought CNO Conseco at 38 cents in 2009 and sold at $5, I felt like I was taking advantage of market irrationality just like I do today in YLO.

So, we agree that people and humans are not perfect. What matters to me as an investor is not what has happened, but what is going to happen. Looking at the matrix of smart/dumb decisions that could be made on a forward basis, seriously, I wonder if there are people in place that are going to make unbelievably stupid decisions. Honestly, the answer is no. The decisions in the past that were bad were biased by historic thinking. Now, they’ve cut everything and are looking at everything with fresh eyes which is what you need.

Is tellier going to give the company to creditors? NO. There is not a bone in my body that thinks he’s just going to give up and be an idiot and give creditors a multi billion dollar company just because he can, and in fact I don’t think he can… What you are looking at is a situation that is pricing in:

1. Everyone on the board of directors, CEO, all of the committees, think that the stock market is right, the company is worthless and are going to give over the company to creditors. Is this likely? LOL, are you kidding me that we are entertaining this idea?

2. 25%+ annual declines in print, company goes into receivorship. Is this likely? I don’t think that this is realistic either.

So, I am beting that because 1 and 2 are not likely, that the most likely outcome is $1+ on the commons at some point in the next 2 years. Do I trust Tellier and the BOD? Yes. The bad decisions in the past were subject to human misinterpretation. The decisions that you are looking at now are not subject to that, and are subject to proactively sabotaging a company that based on my interpretation of everyone involved at the decision making level, is not in their best interests to do.

Does that assist in supporting my perspective that Tellier is the best man for the job?