Arbitrage Opportunity on Genie Energy

Genie Energy (GNE) reported yesterday that will renew its offer to exchange common shares for preferred shares (GNE-PA). I reported about the interesting exchange offer last month.

To recap the offer, investors have the right to exchange their common shares on a one to one basis for the preferred shares. The preferred has the following features:

  • Has a liquidation preference of $8.50 per share.
  • Annual dividend of $0.6375 per share.
  • Redeemable following October 11, 2016 at 101% of the Liquidation Preference plus accrued and unpaid dividends.
  • Redeemable following October 11, 2017 at Liquidation Preference plus accrued and unpaid dividends,
  • Genie does not have to redeem the issue at all.
  • It is senior to the common shares.

This presents an interesting option because the common stock is trading around $6 and the preferred is trading around $7.  You could potentially buy the shares of the common stock at $6 and exchange it for 7 after conversion.

Obviously, you could short out the preferred. However, there is not much liquidity on the preferred.

I was able to buy shares at $6.01-$6.15 this morning. I expect the common and preferred to converge.

At current common stock price ($6 and change), you are getting a yield of over 10% (.6375/6). Like I said, they should have no problem paying interest on the preferred for a while, since they have a strong balance sheet. 

Disclosure: I am  long GNE

2 thoughts on “Arbitrage Opportunity on Genie Energy

  1. This stock is really misunderstood. I don’t think there’s much chance the cash will be spent on developing this really impossible scheme – have you looked at the diagrams? Genie is going to drill through an aquifer and then extract the oil through a hose going right through the aquifer. This has absolutely ZERO chance of ever getting through environmental approval. So the cash is safe.

    • No I have not looked at the technology. So that means you are saying the preferred is a better bet than the stock? Why do you think management is so intent on selling the preferred?
      Also, Total, their partner, has spent a good deal on the initial cap ex.

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