Sort of puts the lie to the usual financial market blather with the TV talking heads mantra re "cheap money" in the current markets... doesn't it ?
J.P. Morgan might be getting free money and a zero percent interest rate... but, what's the spread ?
Or, "What's the frequency, Kenneth" ?
For people actually trying to do something more useful with the money created out of thin air, other than making it into more money by scamming others out of money, it means borrowing $1000 costs you $1390 up front in equity, fees and obligations, plus the 5% interest paid on the $1000, and plus the cost of lost opportunity in the longer term dilution risk in the warrants.
If it were a mortgage on a house, for every $100,000 you borrowed, it means they'd want you to create direct obligations of $139,000... before lending you the $100,000 at 5% ? And then, even when you paid off the mortgage, they'd still own a pretty big percentage of the house... along with a right to buy more, at a discount ?
Of course, I'm not focusing on any of the business or the market risks that exist that might dilute the value to the lenders... the warrants might not ever be exercised if the company doesn't succeed... and, reality is... that's probably a pretty good deal compared to the deal others might be willing to offer.
Anyone know how the terms in this deal stack up against what was on the table in the deal they turned down ?
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