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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: CalculatedRisk who wrote (11628)	7/17/1998 7:52:00 AM
From: Roger A. Babb	Read Replies (4) \| Respond to of 18691

CR, I agree that the loan terms are very confusing. The "discount" on the warrants is not a direct cost to TAVA, but is a hidden "dilution cost" to existing stockholders.

To: CalculatedRisk who wrote (11628)	7/17/1998 12:06:00 PM
From: Oeconomicus	Read Replies (1) \| Respond to of 18691

Bill, Re TAVA, the booking of the debt, net of the "OID" is correct. By the time the debt reaches maturity, it will be on the books for the full amount. The accretion will hit the income statement as non-cash interest expense, reducing shareholder's equity by the amount of the OID over the term. Note also that the "value" of the warrants, the OID amount, would have been booked as a credit to paid-in capital. You are correct that their real financial leverage is understated as a result, but, if they had valued the warrants at the million or more dollars you suggest, the understatement of leverage at the present would have been greater and the book income in the future would be less. As Roger noted, the real cost of the warrants is dilution. It might be worth checking the fine print for any redemption features too. Bob