Monkey - I have a theory on this.
A few years back Infinera issued a convertible bond offering. A convertible bond behaves both like a bond and a stock - in that the bond can be converted into shares at some point before the bond matures. In the meantime, the purchaser continues to receive interest on the coupon. It was sold at 1.75%.
Hedge funds are the typical purchasers of these types of assets. And when they purchase them, they also sell the security short as a form of a hedge.
Convertible arbitrage is a market-neutral investment strategy often employed by hedge funds. It involves the simultaneous purchase of convertible securities and the short sale of the same issuer’s common stock.
The premise of the strategy is that the convertible is sometimes priced inefficiently relative to the underlying stock, for reasons that range from illiquidity to market psychology. In particular, the equity option embedded in the convertible bond may be a source of cheap volatility, which convertible arbitrageurs can then exploit.
Here is some info on the nature of the bond Infinera has issued:
Infinera has a capital structure that includes only one bond - A $150 million 1.75% convertible bond with maturity in 2018 and a conversion price of $12.58 per share. This means that at any point in time, Infinera might have no interest expense (by converting the bond into stock) and add a little dilution to its equity float. Dilution would be approximately 11.9 million shares, or 8.5% of total shares outstanding as of last quarter.
This bond was issued as a private placement, and the fact that the bondholders have not yet converted their bonds to realize the gains sends a behavioral signal to the equity market. Assuming bondholders know what they are doing, it appears that they continue to see upside potential in Infinera’s stock. At this point, the intrinsic value of the call options embedded in the bonds is approximately $88.5 million. Small and cheap debt makes Infinera carry very little financial risk, tilting the risk and reward in favor of equity investors because most of the earnings accrue directly to shareholders.
Who owns these bonds currently? http://stockzoa.com/cusip/45667gab9/
Hence, as a result of the hedge fund strategy you have the same institution both long and short - and that is ok for them as long as they are still north of the issuance price AND they continue to receive 1.75% interest. These institutions are long term bullish, but hedging over the short term. And consequently, you have a short interest on the stock which may spook your average investor into having some jitters about the direction the stock is heading.
That’s my attempt at an explanation, although I can’t be certain that is the 100% reason either. Keep in mind, too, that not everyone in the world reads these boards, and, although Infinera is well understood here - it likely isn’t very well understood outside of our little oasis.
Hope that helps some.