Comments on: XL Capital: Short Interest Poised to Drop – Will the Stock Pop? http://johnappel.com/2009/02/05/xl-capital-short-interest-poised-to-drop-%e2%80%93-will-the-stock-pop/ Companies with stock prices below their "fundamental" values Fri, 14 May 2010 14:27:03 +0000 hourly 1 http://wordpress.com/ By: John Appel http://johnappel.com/2009/02/05/xl-capital-short-interest-poised-to-drop-%e2%80%93-will-the-stock-pop/#comment-64 Mon, 09 Feb 2009 18:31:10 +0000 http://johnappel.com/?p=770#comment-64 It’s hard to say what amount of the short interest could be related to the 10.75% units. From the chart included in the post, I would guess that the number is closer to 10MM than 20MM, but that’s only a guess. It’s also very hard to know what one would do if they’ve shorted the stock as a hedge but at some point feel that the stock has bottomed…. Interesting question about repurchasing shares. In more normal times, I would think a share repurchase could make sense, but given how dear liquidity and equity capital are these days, I don’t think a share repurchase is likely.

]]> By: pbassel http://johnappel.com/2009/02/05/xl-capital-short-interest-poised-to-drop-%e2%80%93-will-the-stock-pop/#comment-63 Mon, 09 Feb 2009 16:51:58 +0000 http://johnappel.com/?p=770#comment-63 Hi John & Thanks for info.

Would you say that 20 million of the 30 million shorts outstanding could be related to the shares that come out of the 10.75% Equity Security Units sold on August 5, 2008?

If so, most of the shorts on XL are protecting shares they will be (could be) assigned out of these issues.

For long shareholders that’s even less potential pent up demand for shares if share prices go up.

For those selling naked shorts on XL, they have a lot less company than they thought.

Could XL buy at these low levels to sell to buyers of this issue at the higher preset levels?

If so, how would they have to account for those share till they put them?

Is put price range $16 – $18.88 ?

An interesting observation, if true.

Interested in your views & thanks.

]]> By: John Appel http://johnappel.com/2009/02/05/xl-capital-short-interest-poised-to-drop-%e2%80%93-will-the-stock-pop/#comment-60 Fri, 06 Feb 2009 14:09:14 +0000 http://johnappel.com/?p=770#comment-60 I have been asked if I expect a short squeeze. The short answer (pun intended) is no. In general, if a short sale is a hedge of a future purchase of new issue shares, covering the short is unlikely to move the stock price because the short can be covered by new shares rather than market purchases. In the case of XL, it is hard to know what amount of short interest is related to hedges, and if the unwind of hedges will result in a need to cover short sales that is less than, equal to, or greater than the 11.46 million new shares to be issued.

The more important thing fundamentally is that the 7% units increase the company’s equity capital by $745 million, which is good (although book value per share increases only slightly because of the increase in shares). If the related notes are remarketed successfully, total capital increases by $745 million as well, which is even better.

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