From hliu at mindspring.com Sun Apr 4 11:14:40 1999
In fact, the bond market is used to keep to stock market at
over-valued levels. Look at Amazon. Its billion dollar
convertaible bond issue was based on the strategy of
maintaining or pushing up its market capitalization value.
The Amazon "bond" deal (such as it is) is really just taking advantage of a loophole. Amazon can't *guarantee* the stock will go up to people whose investment parameters only allow for *guaranteed* investments. But they can offer a paltry 5% after five years (sure, 10% YTM, but ...); heck, either they will default or it won't matter anyway, right?
Pension funds who would get fried for buying AMZN at $156/share had no problem buying a convertible bond issue that's giving them a taste of all that equity upside.
It's practically a secondary offering only to groups who will lend them money :) ... and if they redeem, all the better: Amazon doesn't have to pay them back, and the market participants again pick up the tab.
Don't forget, Amazon's IPO only netted the company about $57M.
Trade those magic beans for cash today!
/jordan