Submitted by Tyler Durden.
According to CNBC's David Faber, Knight Capital will live at least for another day and avoid bankruptcy. Instead, it will experience dilution which will make its equityholders almost wish the company was filing. Knight, via Jefferies, is about to stick its shareholders with a massive dilution following the issuance of a $400 million convert bond at a $1.50 conversion price, or more than 60% dilution from Friday's $4.05 closing price.
Knight Capital gets $400M from four firms through conv pref offering. Conversion price is $1.50 a share, but firm will be saved.
— DAVID FABER (@DavidFaberCNBC) August 5, 2012
This effectively means that the equity slice is for all intents and purposes wiped out and will be crammed down by a convert (technically upon conversion pari passu with the equity, but implicitly a 60%+ discount to market to stimulate new strategic investor interest), which itself may also be at risk, if Knight's action is insufficient to restore confidence in the firm from its counterparties. It also means that since the convert is unsecured, those who invest in it could face full write down on their investment shortly, which likely means the previously discussed TD Ameritrade and Getco.
But the good news, at least for Knight's 1400 employees, is that they will have a job for at least a few more days until the true fallout of last week's mega trade blunder is understood.
As for what happens next for KGC stock? It may well bounce following a sharp but brief short covering rally, only to be followed by an exodus as investors take the opportunity to cash out from a firm which has already indicated it will do anything to preserve its viability, including nearly complete dilution.