I have gone back and read in detail the specific clauses (as referred to in the recent announcement) from the notes documentation. I am now a bit more comfortable with it (although, still far from thrilled).
Previously i thought the conversion price reduced by the amount of each dividend payment. i.e. a 7 cent dividend results in the new conversion price being 2.10 - 0.07 = 2.03.
Having reviewed again, the actual calculation is essentially based on the yield of the re-based conversion price (using the 10 day VWAP prior to the ex dividend date). So, the calculation for the recent dividend was 2.10 x ((2.50-0.07)/2.50) = 2.0412. In this formula $2.50 is the 10 day VWAP for NHC shares prior to the ex date.
The next calculation will use the new lower conversion price of 2.0412 as the multiplier.
So, this means the dilution will be less than i thought, and the mechanism, i believe, is design to effectively provide noteholders with the same proportional benefit that ordinary shareholders receive for each dividend.
Taking an optimistic view, if for example the next dividend is 30 cents and the market price at the time is $4, the new conversion price would be 2.0412 x (3.7/4.0) = $1.8881 (i.e. only a 15 cent reduction, not 30 cents).
makes me a bit more comfortable with it.
NHC Price at posting:
$2.13 Sentiment: Buy Disclosure: Held
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