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It's a boilerplate statement, and much different from the touted, "sworn statement to the SEC stated there is a high probability commons will not survive".
I'm not attempting to take away the risk of buying shares in a BK stock. Just correcting perspective.
It doesn't.
The Hedge Fund information is updated quarterly. We should have a better picture of who represents unsecured equity at the end of this month, when the latest holdings are reported.
That's not necessarily true. You seem to be using total liabilities. Bankruptcy code requires all "claims" to be paid in cash, in full, prior to exiting. Claims and liabilities are two very different things. Also, even if the full force of liabilities were claimed against ARO, they still paid down the BoA facility at $73M; your number is wrong even in the worst case scenario.
That's not necessarily true. You seem to be using total liabilities. Bankruptcy code requires all "claims" to be paid in cash, in full, prior to exiting. Claims and liabilities are two very different things. Also, even if the full force of liabilities were claimed against ARO, they still paid down the BoA facility at $73M; your number is wrong either way.
The Code requires the debtor to settle all claims in cash prior to exit.
ARO has approx., $188M in claims from Sycamore as best I can ascertain.
The DIP Facility is $160M, of which ARO has drawn $100M to date.
Again, there are no bond holders, no other senior debt holders other than Sycamore and Crystal.
Alright, many scenarios can happen from this point forward, a lot of ARO's more favorable outcomes depends largely on their Back-to-school seasonal success or failure. The failure outcomes are rather obvious -no one gets anything so let's assume they have a good season.
Of the current debt in play, ARO has to pay back the $188M to Sycamore. Assumable, in cash. Prior to exiting Chapter 11.
Ordinarily for a small cap company I'd say that's probably in excess of their means, but I think ARO has played the game very well to date and let Sycamore work themselves into a corner. I think a claim against them is likely (certainly deservedly), and the likely outcome is a mediated settlement approved by the Judge. ARO will still have to pay their way out, but I suspect this will be at a reduced or negotiated rate; something manageable. This is important because there's still the DIP.
Ordinarily here, under a successful restructuring plan, the DIP will convert into a Exit Facility that takes the form of partial cash liquidity and new equity under the newly formed company. You'd probably be right to assume this under just about any scenario but here's what I'm seeing:
1. Under the terms and conditions of the Sycamore credit facility, ARO was required to maintain cash on hand and availability of $70M(minimum liquidity covenant) or more at all times. As we know, ARO never gave Sycamore the satisfaction of defaulting on this condition. Point in fact, as of the last filing, ARO had $56M in working capital, $65M in cash on hand, and a revolving BoA Credit facility remaining of $130M to draw from.
2. ARO draws the initial $100M from the DIP loan and uses $73M to pay of the remaining balance from the BoA. They have the remaining $27M, plus whatever cash on hand (assume $65M as of the last filing) and working capital of $56M (again assumed from the last filing) which gives them close to $150M in working liquidty.
3. You do the math. Or I will. Sycamore is owed $150M from Tranche A and B, and another $33M from Interest for a total of $188M. ARO has approx. $150M in liquidity, coming into the Back-to-School season. Yes, there is no guarantee that ARO will file a claim against Sycamore -but let's be realistic. If I were ARO, I'd file that damn claim. It's pretty obvious Sycamore maneuvered them into Chapter 11, and based on Sycamores recent behavior attempting to file joint Discovery prior to the POR, I'd say they know it as well. Expect that $188M to be remediated, at minimum to a lower figure.
4. Which leaves you with the DIP loan. ARO has currently withdrawn $100M as stated, in large part to pay off the BoA facility which was automatically defaulted against when they entered Chapter 11. As we know, DIPs eventually take the form of Exit Facility's (sometimes filed in tandem -not in our case).
To summarize: At maximum capacity as of this date, we're discussing $288M in debt restructuring, in general. Of that $100M will likely be converted into the Exit Facility (since they used 75% of this to pay of BoA, we can almost certainly assume that portion won't be used for liquid purposes which means it'll translate into some for of equity post BK.). The remaining portion is likely to be used for liquid purposes upon approval (likely it'll just sit there as cash on hand to prevent a default on the DIP terms).
Alright, point being, you might be right and the company may cancel common, but when you look at the numbers, this is a very minor amount of debt to execute a restructure against. Not enough by any tool of measurement, IMO to wipe their only investors and start over.
Especially when you account for the fact that Preferred is untapped; and there are a host of other financial instruments available they can draw from, if they choose to.
This is not your ordinary BK. Any way you look at this, ARO should not be here.
I'd make the opposite argument that there's not enough time to cancel common, create and approve a new ticker, and conclude chapter 11 by 26 August. That's just under 2 months.
I'd make the opposite argument that there's not enough time to cancel common, create and approve a new ticker, and conclude chapter 11 by 26 August. That's just under 2 months.
This stuff is pretty telling:
ARO seems to have plenty of room to maneuver. On paper they appear to be one of the stronger BK bets. It's really up to the Judge. If the senior debtors push to dissolve common, let's hope he looks at the numbers and asks, "why?".
You did well to get on free shares.
I think common has a good chance of coming out intact. There's 2 senior debtors (Crystal $160M DIP loan, and Sycamores $150M in credit facilities). The BoA credit facility is already resolved via the DIP disbursement of $73M.
The senior debt will be restructured. They will most likely receive some form of equity vehicle, whether it's common shares, or some new form of equity (debenture, note, bond, warrant, etc..) that we haven't seen yet remains to be seen.
Again, as I've said before, there's no other equity stakeholders here. Just us, the common shareholder, and the two senior debtors.
Now, IMO under their current share structure they can easily absorb the full $348M ($160M DIP + $188M Sycamore Tranch A,B,C) under the current equity class. Preferred alone was only tapped for 1000 shares and based on what I've read it appears Sycamore already converted those to common. At minimum, ARO can create a new, senior equity vehicle in the form of Preferred B or C. Or issue Bonds or warrants. And it doesn't have to be for the full amount. ARO can support the full $348M but they don't have to. They can issue equity for half of their debt and restructure under new 5 or 10-year terms for the remaining portions. There's many ways to do this.
All without wiping out the common.
There just isn't much of a case any way you look at it that would support starting over with new equity. Just because they file Chapter 11 doesn't provide reason and justification to wipe out common. There has to be a need , and I'm not seeing that here.
Now I'm not buying into the hope of riches, just trying to make a logical case. If someone want's to provide a counter-perspective I'd welcome that.
Well in this case the bonuses are tied to sales targets so if ARO doesn't meet their targets, nobody gets anything. Including us.
Yes, certainly make or break for them. Management seems to want to reward loyal members. Hopefully that will translate to loyal shareholders as well. Remember their are no bond or warrant holders, only debt (credit facility) holders, and common (Sycamore is the only holder of Preferred shares and I believe as of the bankruptcy they've converted those).
They can, but I think an extension is doubtful, or at least not a lengthy one. Sycamore is pressing for a quick resolution.
Strong finish!
I noticed that too.
With the timeline they're attempting to adhere to, it would just be difficult to cancel common and issue new shares. By their own agreement ARO must conclude the Sale or Reorganization of the company by 26 August. That's an incredibly tight timeline.
still here in ARCS, waiting for ticker/name change.
My rationale behind them taking paychecks again is fairly simple. They're obviously willing to make sacrifices for this company. Let's use a ballpark salary of $100,000 for each; that's $300K in additional fixed cost per month.
Obviously PXYN has been in dire straights if they had to forego pay. And I'm not making the case that they're anywhere near clear yet.
But the executive team taking their paychecks again is a stabilizing indicator. The 10_K and Q will show only negative information which should serve to suppress the price until after July, into August.
We won't know what this new guy is accomplishing; if any, until the September Quarterly is published (he went effective as CEO 31 March).
So, foregoing another letter between now and then, and because the K and Q1 will likely show heavy losses and substantially increased debt ratio, or debt to equity ratio, I think prices will remain at this level for the interim. The bears will be sure to point out everything negative in the filings to come ensuring a sustained attack on price increase.
It took him just over 60 days to publish the second letter, so, for lack of better historical information on this guy, let's assume this is his norm for now. That means the next letter will likely come sometime in August, possibly near the end. He'll want more than just "taking paychecks again" to report -as a matter of fact he'll have to make good on his word that he's making the progress he reported on in his last two letters. Which means if he succeeds, I anticipate more than just a simple "taking paychecks again" announcement.
Let's face it, PXYN is in the dumps right now. If he can turn it around, I will be impressed.
You're correct, I recalled the 15 day extension from his last letter as a similar statement.
Problem is this guy keeps saying "within the next few weeks", which I interpret to mean the next 3-4 weeks; but I suspect actually means the next 3-6 months.
In any case, this CEO at least otherwise demonstrates effective writing skills. I wish you guys luck.
If they start taking paychecks again, then I will consider repurchasing shares.
great to have you here.
Can you do so?
Dates of Effectiveness:
03 July 2016: Plan of Reorganization Due.
18 July 2016: Rules for Auction Due.
26 Aug 2016: ARO must conclude Sale or Reorganization.
Big news afoot in the industry at large:
http://dailycaller.com/2016/06/17/microsoft-teams-up-with-marijuana-software-company-to-help-facilitate-the-industry/
Story posted on FORBES also but I couldn't access the link behind my current firewall.
Looks like it's going to be a good election year for the industry. Big companies gearing up for it.
I think what you're missing is that most of here automatically assume the shell game is part of the story. Why R/M into a penny shell otherwise? That doesn't take away the fundamental value of a company proposition.
PXYN had the wrong business model for sure, but it was still, in terms of penny companies, generating massive revenue. All they had to do, to capitalize on the momentum they had, was pivot. Pivot to a new, acceptable model. Like this new CEO wants to do (he just doesn't have the revenue to do it now -it's too late). Buy an FDA licensed distributor. Turn it into a real company.
That was the massive failure here. Kurtz never made the pivot. Maybe he had tunnel vision. Maybe he was advised it was a bad idea. Maybe there were just too many voices whispering in his ear and he couldn't think straight, so he just threw the wrong dart.
This new guy, maybe if he were brought in 2 years ago when a new CEO should have been found; could have identified it and made the change.
It's too late now. All PXYN has now are shares to issue.
I don't disagree with anything you say here, other than the fact that it was intentionally set up this way. It was not, IMO. This was just how the chips fell after Dan Weasel left; and it was allowed to remain this way because it suited everyone who had a seat at the table, to have a pliant, and complicit CEO they could manipulate.
The end result is the same.
That's not true either. Most of the players held their shares until they couldn't anymore. PXYN had some real potential; Kurtz just needed to get out of it's way. His mistake was letting it get to his head. He was interim CEO after Dan Weasels forced removal, until a better candidate could be found -but after awhile he grew comfortable with the title and I imagine, just stopped looking. That was when everything began heading downhill.
You showed up around that time.
I'm sure he's a fine person; I really don't know much about him. I know PXYN has no money to pay their executive team as their filing indicated.
Look, someone has to attempt to row the boat out of this mess Kurtz created. There's always a guinea pig willing to lead the charge into a hopeful future. He may be able to pull a rabbit out of a hat, but right now the reality is pretty chilling. Kurtz left this guy with a sinking ship and he's going to need a lot of money to steer this mess back into any semblance of profitability.
I'll be honest about something also.
I don't have much sympathy for you. I was calling for Ed Kurtz to resign for at least the past 18 months, if not the past 2 years. I tried to factually support my suspicions that Kurtz was steering us the wrong way. Everyone here knows I was one of his biggest critics; while you were one of his staunchest supporters. You reap what you sow.
It was always the management (particularly Ed) that held this company back. Kurtz treated his shareholders with obvious dislike, and disdain. When forces finally arrayed against him, it was easy for them to subvert and control the narrative. That just seemed to further drive him into seclusion.
The TPS deal was at least a revenue generator; if one with massive problems (i.e., TPS siphoning revenue and Garbino a massive conflict of interest as a BoD member). Getting rid of the TPS contract would have been great, if there were an actual plan. In hindsight, it seemed Kurtz's great plan was for PfD to attempt to spin up; steal all of TPS's sales staff and make merry into the future. How could they not know this would end up in abject failure?
Kurtz IMO should be barred from ever being a company executive again. He took a decent company with some real problems; fixed most of them; and then sank the ship.
oh blunder, of Blunders.
Yes, waiting on July POR.
I think ARO has a better than average chance of pulling out of BK with common intact; within context. About 1 and 10 companies come out of BK with common intact (the last numbers I read were 4 of 41 which translates to roughly 1 in 10). Decent odds for a lotto play IMO. Don't bet the house but you should be able to make a modest wager here.
If you read their 10K, ARO looks healthy as a company. I get the fact that their current debt-to-equity is negative; which makes a strong case for a company heading to BK -but in ARO's case, I just don't think they were there yet -Sycamore strategically maneuvered/put them here, IMO (they played dirty calling in their debt knowing it would force ARO into BK). Everything I've read indicates ARO was about to turn the corner, when Sycamore pulled the plug. We'll see what the numbers look like in the Q when they post it. It'll be a little different now that they're in BK with DIP financing, but we should still be able to decipher whether or not the Q was a good one.
I like our chances. This is an executive team that's fighting; out to prove everyone wrong. Bodes well for us.
Interesting Article, apparently 17 July kicks off ARO's Back-to-school Denim campaign. Read Here:
That's how I've interpreted the fallout also. I really think Sycamore was out to aggressively acquire ARO through a manufactured liquidation, which ARO was able to head off with the DIP. I'd like to think Sycamore could get over it and conduct business rationally now but that's just not human nature. They'll go for the gut if they still can, which, like I said may be good for us. Insiders still hold shares, the extremely swift timing of the restructure deadline, and the fact that the O/S is healthy as is, all bode well for us. We'll see. I think ARO will want to come out of this BK swinging and they'll want good publicity as someone else said, so we have a small chance of this working out favorably.
If they publish the Q, then we may get an advance heads-up prior to the mid-july deadline for the restructuring plan.
It's possible Sycamore becomes the White Knight (which would be a storytale transition) now that they're in second place. If ARO does indeed restructure successfully they will want a large piece of the pie. But let's be real: Sycamore is an aggressive company -they will likely push to wipe us out to ensure a more lean and efficient company -in which case ARO may just keep Common intact to spite them for getting us all here in the first place.
Let's not forget we still have insiders holding common. There is still a path forward, albeit, a delicate one. The longer this remains a cat fight, the more Common has a chance of surviving.
Well, the DIP doesn't guarantee a fruitful exit out of BK; it just means the Crystal Financiers are now first in line to collect, whether ARO restructures or liquidates. They are now the senior financier (moving Sycamore into second place).
The $150M Sycamore credit facility that ARO agreed to in 2014 contained a poison pill which essentially stated that if ARO's ever fell below $70M, that ARO would default on the facility providing Sycamore the opportunity to legally enforce their will upon the company.
Sycamore has a history of predatory acquisitions(see Hot Topic).
Here's what I suspect: Based on the last 2 years of filings and news clips it appears ARO underwent a deep restructuring that included the closure of over 300 unprofitable stores (to include those 100 some stores now closed via BK). This sort of restructuring takes time to execute. I speculate that Sycamore recognized that ARO wasn't going to default (go below $70M in liquidity) on their credit facility, so they resorted to the next best tactic which was calling in the loan (all at once). This is really what appears to have set the Chapter 11 in motion.
Crystal's come to the rescue and provided a $160M DIP for the interim. Part of this apparently was/will be used settle to in full with Sycamore and their financing subsidiary and moving forward, they will part ways once BK is resolved (one way or another).
Okay so now that ARO is in BK, has worked out further financing for the interim; the main question now is will ARO restructure Common. Crystal is first to collect now. Sycamore's been put into second place in line. I'm not aware of any other Common institutional holders of AROPQ at this time. Notably, I haven't seen any insider selling (other than the Sycamore BoD member who resigned) leading up to the BK. I'm also not aware of any other Preferred shares in existence (other than the 1000 owned by Sycamore), or outstanding warrants or bonds issued from the company.
So basically we have 1000 Preferred shares, and about 80M Common outstanding as the only equity instruments -fairly simple. As best I can tell, all of the remaining Hedge Funds have exited and I'm not aware of any other large institutional holders (I did read one article that hinted there was another party with a claim but currently cannot find the source).
Which makes this interesting. Normally there's a hierarchy of debtors but in ARO's case there really only appear to be 2 major players (Crystal and Sycamore) and a ragtag collection of minors.
Let's be clear, if it comes to liquidation Common will be wiped out; this is a sure thing. But if ARO restructures, they will attempt to reconcile their liabilities and Common may have a chance. Right now their debt-to-equity ratio is pretty severe. This means if they restructure, they'll have to wipe debt out by handing out new equity instruments as recompense. This could take the form of bonds or convertible warrants, or it could mean wiping common and reissuing new shares. What's currently working in our favor is that the current O/s is relatively healthy which makes part of a case for saving common. Right now we just need an active investor making the case to save it (which I'm not sure we have).
that 8k just states the amended final approval date of the credit facility (i.e. DIP loan), amended to be 41 days after ARO's petition date (4 May), which comes out to 14 June.
There's little reason to; it's unlikely they'll liquidate unless the school season turns into a hug mess, in which case the creditors will take the company apart forcefully. Then common will certainly be wiped out.
IMO, ARO will attempt to either restructure the terms of their debt, or wipe it out completely. If they go with the latter, common should also be wiped out (because they would likely provide new equity under a different ticker to the creditors as partial recompense).
We'll see. They're apparently allergic to draconian measures, so I'm interested to see if they'll resort to it themselves.
I think ARO comes out swinging, in August. The majority of their losses seem to have been caused from restructuring charges (they closed quite a few stores prior to the BK), and the consistent sales depreciation seems due more from closing those stores than actual lagging sales.
I think there's a story here. Further, after scrubbing their latest 10K, their core fundamentals still seem to be intact. I think what pushed them into bankruptcy was indeed just what they say happened; predatory senior financier (I believe the word they actually used was Draconian).
AROPQ seems to be in a pretty good position to exit BK intact, given their back-to-school sales comes in decent (I think strong sales are irrelavent, they just need to post decent seasonal numbers at this point).
The DIP loan, without a doubt, is positive news for us. It puts Sycamore, who was the senior lender, in line now. That means they no longer get paid first. It's not a major earthshaker, but they're no longer guaranteed their choice of steak if this goes to auction/liquidation. Which means there's more of a case for Sycamore to now support restructuring (I believe it's why they fought so hard to deny ARO the DIP financing). It's not nail-in-the-coffin leverage, but probably adequate to play poker with.
Currently the settlement:
News articles appear to indicate that. Let's hope it works out for them (and us).