At first I assumed that a bank would be crazy loaning $75M to
AMZN, given that they don't have any assets to speak of, and
are bleeding money at an exponentially increasing rate. So I
looked up the 8-K on the SEC web site.
As do most loans, it includes some fine print. (One of the Ferengi
rules of Acquisition is something to the effect that Large risk is in
the fine print.)
In addition, financial covenants will require the Company to,
among other things, maintain a minimum cash balance, maintain
certain levels of earnings or losses before interest, taxes,
depreciation and amortization,
Failure to maintain those earnings would not be pretty:
If the Company cannot satisfy the Facility's covenants,
the Company will be in default. In such event, the lending
institutions will be able to exercise their remedies, including
the right to declare all principal and interest immediately
due and payable. If the Company were unable to make
such payment, or to repay the amount owing under the
Facility at the end of its term, the lending institutions could
foreclose on the Company's assets, substantially all of
which will be pledged as security for the Facility.
sec.gov
Such a foreclosure would leave the stock totally worthless, so
the actual effect is to force AMZN to issue more shares before
they end up beyond a certain amount in the red. To find out
that amount, I would have to know just how much earnings
(losings) they would have to have under the loan agreement.
Is this public information?
I think it interesting that substantially all of the Company's
assets will be pledged to just its first lender. There isn't
any left to pledge to the next lender. So this only buys
them at the very most $75M worth of time before they
have to sell more stock. My guess is an announcement
during 3Q98. Can the shorts hold out that long?
-- Carl |
