Companies can only borrow to finance a buy-back when they meet all three of the following conditions: (1) positive cashflow, (2) positive net worth and (3) low leverage (ie, little or no debt relative to net worth).
If they don't meet those conditions, they won't find anyone willing to loan them the money. Their existing creditors will tell them 'You can't even generate enough cash to fund operations and you have no net worth to secure my loans in the first place. You want to borrow more money to do what??' Not only will they no loan them the money, but they'll call their existing loans.
Potential new creditors will tell them 'You can't even generate enough cash to fund operations and you have no net worth to secure your existing loans. You want me to loan you money to do what??'
Take it from a banker: we should be thanking God this company is not in Chapter 11. A stock buy-back is the LAST thing Fan is thinking about spending cash on. We'll be lucky to have enough cash to service the existing debt, pay off the accrued liabilities (eg, unpaid payroll, ads), and fund operations so the channel can grow. That will take millions. I suspect he's going to do a r/s to get the stock price back up to tradeable levels. If it falls back, then that just means the market thinks this company's equity is not worth much. News flash: right now the market is saying it's worthless.
AI
