Convertible Bonds of Countrywide Financial Corporation Harvard Case Solution & Analysis

October 22, 2004, a junior trader Maria Lucas View recent trading activity of several convertible bonds held. Convergence Inc. was the first hedge fund specializing in convertible arbitrage founded by three Wall Street traders in 2002. Before the start of the company, she knew little about the convertible bonds. Now she was late almost every day to learn more about the business opportunity. Suddenly she noticed something unusual trading of convertible bonds issued by Countrywide Financial Corporation (NYSE: CFC). Although the average daily trading volume on this link was only three thousand in the previous month, it jumped to 50,000 in the last three days. Lucas remembered this link. In fact, the first convergence was actually holds several other convertible bonds (known as liquid yield option note or LYON), issued by the same company. August 20 Countrywide offered to exchange new convertible bonds for the original LYON. The first convergence was accepted the exchange offer, thus ending up with a new convertible bonds. At that time, Lucas asked to help evaluate the proposal, so she was familiar with the features and bonds. "What's going on?" she asked herself. She quickly checked the recent movement in stock prices Countrywide's website. The stock plunged 11.5 percent on Wednesday, October 20, after the company announced earnings below analysts' expectations. On the same day, trading in convertible soared. These two developments should be linked. But how? There is a potential for investment? "Hide
by Ravi Jagannathan, Da Zhi Source: Kellogg School Management 11 pages. Publication Date: January 1, 2007. Prod. #: KEL323-PDF-ENG

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