Can somebody please explain these warrants for 281,000 shares to me
If they don't remove debt and they don't raise capital, should I assume that they are just a gift to the financers?
This business doesn't need to be this complicated or this crooked. I've lost a lot of confidence in Eric over the past few years due to these financing messes and the silly airplanes. Using and abusing other people's money is not a game. We need change at the top.
In the past convertibles debt offerings that Rick's has done, they also came with warrants for those who bought the debt and I think the investment bank who did the financing for Rick's. Apparently, someone probably has chosen to exercise their warrants, and so Rick's must file the appropriate paper work to issue more shares in order to fulfill the warrant exercise request. The upside potential from the conversion of the debt and extra warrants is why Rick's ends up with a percentage rate of 10% instead of 13%. The present value calculation of that extra 3% should be equal to the cost of a $10.50 call option of the same maturity.....and Rick's will say that they get the upside of not having to hand over principal on the debt at the maturity date.
I personally rather they just do 13% debt vs convertibles......but the debt should cost the company the same. Also, while the filing doesn't mean debt is being removed, it wouldn't be a wild assumption that if someone is exercising their warrants, they might also be exercising their option to convert the debt, too. It isn't a gift, just part of a capital raising none of us really liked when it was first signed.
But I strongly disagree with any 13% debt. Even Warren Buffett couldn't make much money with capital that expensive. I agree with Heisenberg that Eric has shareholders' heads on the chopping block due to all the debt run up in the last 2-3 years. Debt destroys the value of the stock. The lawsuits and pole tax scare me too.
I'm glad I bought AEO at $11 with it's 4.5% dividend instead of RICK. I keep waiting for change at RICK but it never materializes. It seems that whenever RICK does run up, it's just to issue more shares and burn shareholders again. My confidence in Eric is the lowest it's been in the 6 years that I have followed the company. Granted I never trusted him due to Troy at VCGH burning shareholders, and that's not Eric's fault. But he was yet to do anything to gain any trust either. He gets richer while shareholder risk keeps climbing higher and higher. Something has to give and it appears to be the share price again.
They do raise money for the company, since when the warrants are exercised the company gets the exercise price. However, the problem is if the exercise price is $10.50 (you can look it up) and the stock is trading at $11.00, more shares are being issued at a lower price than market. That is called dilution.
In the meantime, the warrant holders pocket the difference between the exercise price and the market price. They are betting they can exercise the warrants for shares; and then unload the shares at a profit before the SHTF.
Well, yeah ... at the slow rate the courts move on the major cases, they can probably do that!
Warrants are standard practice as sweetners, especially in distressed or private label financing. Rate of borrowing is high, but would be higher if not for the warrants, they get upside optionality to mitigate credit risk in exchange for an adjusted rate. Trust me, I've seen worse rates and terms, like PIK features and antidilution provisions.....