Ann: Convertible Note Offering, page-16

I'll have a go at explaining it by breaking the transaction down into a couple of parts:

1. Company issues $150-200m of new capital via convertible bonds. A convertible bond has characteristics of an option (i.e. equity upside) and a bond (fixed income component). This is clearly seen as a better instrument than traditional debt finance or equity finance.

2. WHSP lends some of its NHC stock to Jefferies. There probably aren't that many instos willing to lend.

3. Jefferies then sells that stock in a placement to other investors and enters into short arrangements with buyers of the CBs to delta hedge the downside in the stock price.

4. If you're a CB investor employing this delta hedge strategy, you are hedging against share price downside through the short position and clipping the interest on the CB. It's a common strategy for fixed income investors and hedge funds.

My summation is the company have an M&A transaction lined up and want certainty of funding. There's a mine next door to Bengalla which I forget who owns but that would be highly synergistic and probably worth a lot more than the $[400m] liquidity they'll have post transaction.

I hope they have their foot on Taipower's 20% in Bengalla.

I'll come up with some maths that shows returns of the delta hedge if anyone is keen to see it.

The CB will be a good test of the market's appetite for coal exposure, the placement too. Wouldn't be surprised to see a lot of international investors.