The group said land acquisition costs (land alienation prices and land conversion premiums
) could be lowered if at least 70 per cent of the land is for affordable housing.
The Cappelli acquisition will be funded through the assumption of approximately $45 million of secured debt, common operating partnership units, cash and approximately $40 million of two series of convertible preferred operating partnership units which carry dividend rates ranging from 6.25 to 7 percent and conversion premiums
of 17.5 and 30 percent.
There should also be a reduction in the bureaucratic measures required and time taken for a developer to obtain approvals for a project, as well as reducing compliance costs such as development charges and land conversion premiums
, he said.
Among those firms that issue convertible bonds, higher-quality firms set low conversion ratios (high conversion premiums), while lower-quality firms within this group set high conversion ratios (or low conversion premiums).
Kim (1990) develops a model of convertible debt financing in which the conversion ratio (conversion premium) serves as a credible signal of firm quality.
This is not statistically different from the average conversion premium of 19.5% set by the group of firms whose convertible bonds do infuse equity into the capital structure.
The conversion premium is the difference between conversion price and the stock price on the day prior to the offer announcement date divided by the stock price.
5 The importance of the conversion premium (conversion ratio) is based on Kim (1990).
We now develop the implications of the asymmetric information hypothesis for subsamples of firms issuing putable convertibles based on conversion premium (i.e., the extent to which the stock price must rise for the conversion option to be in the money).
Finally, firm insiders can signal their type (private information) using a combination of two signals: 1) the choice of security to issue and 2) the conversion premium (if they choose to issue a convertible, is it putable or ordinary).
Thus, our extension of the Stein (1992) model implies that firm insiders with more favorable private information will issue putable convertibles with a high conversion premium. This has three testable predictions for subsamples of firms issuing putable convertibles.
Next, we test the asymmetric information hypothesis H7, which predicts that the announcement effects of putable convertible issues with a high conversion premium relative to a matched set of ordinary convertible issues will be more favorable than those of putable convertible issues with a low conversion premium relative to a matched set of ordinary convertible issues.