TAVA POST #4 - My comments about the email from investor relations.
<<1) Prior closing the Tandem Loan, TAVA had all its assets pledged to various bank facilities as well as the Renaissance debentures.>>
And now they are pledged to Sirrom Capital/Tandem. See section 2.1 of their loan agreement in TAVA's 5/98 10-Q. By the way, for those of you who are not familiar with Sirrom Capital - read some of the comments made about it by "Mr. Pink" on SI. These guys are the corporate equivalent of loan sharks. They charge outrageous up-front fees and insist on aggressive "floorless" convertibles. Many of the companies in their loan portfolio are extremely weak, desperate, or have been run into the ground. Poor people go to sleazy check-cashing places to get "paycheck advance" loans at insane interest rates. Now you know where poor companies go.
<<2) Lending institutions don't lend money based on market cap. or
collateral value ( a common misperception). Traditional bank lenders
look at historical earnings and cash flow to support bank credit.>>
No earnings and the cash flows like glue. No surprise that a legitimate bank won't touch TAVA.
<<3) The Tandem loan does not have any prepayment penalties. We can
repay the debt at any time which extinguishes their collateral position>>
Irrelevant and misleading. Tandem holds a floorless convertible which they have been aggressively converting. The company doesn't have to repay the debt because the debt is being foisted on to the shareholders in the form of massive dilution. This is why floorless convertibles are called "death-spiral" convertibles. Almost wiothout exception, this is a horrible deal for the shareholders.
<<Further, the TANDEM loan does not have any principal payments required for three years and has limited debt covenants>>
Again...irrelevant and misleading, because both the company and Tandem know (wink wink) that we'll never get to the point where the company has to pay any money. The shareholders have already paid up and dearly at that. If the company was sure it could repayu the loan from the earnings stream which will be coming from their stupendous Y2K work, then why not a more traditional convertible?
<<4) Tandem was interested in extending the company additional
credit. TAVA was not interested since Tandems fees were based on the size of the facility. Tandem remains interested in lending TAVA additional funds.>>
Vinny and Rocko will would be delighted to lend you more money. In the meantime, we'll just take your shareholders to that back room.
<<) At 3/31/98, TAVA was in violation of the covenants on the
Renaissance Debenture, not the Tandem loan. The covenant violated was
the Times Interest Earned ratio, which is a ratio designed to measure
earnings to interest expense. TAVA was in violation of the covenant due to losses. These covenants were set when the Renaissance Debenture was closed, in 1996.>>
This certainly should instill confidence in an investor who is being asked to pay $250 MILLION for this money-losing company.
<<Finally, the company is looking at the Tandem loan as a debt facility
which:
1) Is possible to increase>>
Didn't you just say that you really weren't interested in any more money from Tandem?
<<2) Provides time to prove the Y2K Product viability through earnings and thus will allow the company to arrange traditional bank financing>>
It is now summer of 1998 and the supposed Y2K doomsday is only 18 months away. Considering that your actual time frame is much smaller than that (assuming that the window hasn't already closed on you) just when will this "proof" show up?
<<Closing of the Tandem loan was hardly a "desperation" loan. Closing this loan was a part of well developed plan to continue to increase the financial strength and balance sheet of TAVA through an appropriate balance of equity and properly structure debt financing>>
I beg to differ. The principal amount was relatively small yet caused massive dilution. No matter how you slice it, dealing with Sirrom/Tandem smacks of desperation. I'm not surprised though, since you have consistently demonstrated that you can't turn a profit.
<<I hope this will clarify the transaction and illustrate you should
challenge some of the people who misinform the SI board.>>
I love you too.
<<As far as Emerald Research is concerned, I met with the analyst for
approximately 3 hours last monday. If they are dropping coverage it would be complete shock to me.>>
IMO, Emerald research was directly responsible for massive losses by small investors in the Zitel Y2K fraud. Emerald's "research" in that case consisted of little more than parroting the company's lamebrain and absurd projections. I see that Emerald is continuing its proud tradition of dealing with super-classy Y2K companies.
<<I hope all this helps.
J. Scott Liolios>>
It sure did. I am now 100% certain of my short position. |
