Watford,The risk is that fully paids fall below 50c. While this...

Watford,

The risk is that fully paids fall below 50c. While this looks unlikely now, TIM is a classic candidate for a cash squeeze if the credit markets stay illiquid. They have an enormous amount of debt to somehow roll over from mid 2009 until end 2010, virtually all their debt and notes.

TIM have a very illiquid pool of assets available to sell and reduce gearing/debt if the market will not stump up cash for debt due. Probably impossible to sell the tree farms etc so the only choice to replace debt is further share issue/dilution. If US market drops another 15-20% in next 12 months, which is not impossible as that would only take them back to late 2005 prices when in every respect the outlook was much better than today, TIM could hit 50c even before the contemplation of debt covering.

The strategy is a bit risky even if you hedge by going short the heads. What if things actually go well rather than badly, the heads go up 100% in next 12 months and the TIMPB are redeemed for cash? Then you would lose 100% of your investment in TIMPB on the short trade.

appreciate your views regard this devils advocate view.

cheers