Carl, these provisions from the loan agreement a VERY common, especially for far from investment grade credits like AMZN. Look at the interest spreads, LIBOR +3.50% stepping up to +4.00% in six months. This is high risk pricing and the loan provisions taking all the assets as collateral would be the norm (it puts them ahead of any unsecured creditors). Now, if they were to default, they'd have rights and the last place the lender would want to take them is bankruptcy court (but if that happened, shareholders could expect to get wiped out).
As for saving any assets to pledge to another lender, it doesn't really work that way. If AMZN decides a year from now that they need more money, the existing banks can agree to increase the amount of the loans, amend the terms, whatever they want to agree to. They can even add banks to the bank group if the existing banks don't want to loan more themselves, but agree to a bigger facility. All the banks, including new ones, would share in the same collateral. BTW, the facility, as described in the 8-k, provides for up to $100mm if all parties agree.
You are right in that this is obviously a bridge to a secondary offering. The more important issue is whether the economics of whatever they are spending all this money on really make sense. Will it make them more profitable/viable. It is entirely possible that the business ends up doing well enough to keep the lenders quite happy and eventually turn a profit. That, however, does nothing to support the current valuation. The problem I see with this loan is that the apparent primary source of repayment is a secondary stock offering which may be difficult if the stock returns to any justifiable valuation. Imagine trying to sell a secondary after a 75% decline in stock price.
The sad part is that the lenders can do fine and the company can survive and even grow even while the poor shareholders take a bath.
Bob |
