Dutchess is one of the well-know "predator" firms that offer this kind of financing. That MMRF had to go this route indicates they could not get something better, at least not quickly.
Posted by: nsomniyak
Date: Wednesday, September 16, 2009 5:51:32 PM
In reply to: Blue Sky Basin who wrote msg# 12473 of 20250
A toxic financing is structured to allow the financier to buy stock from the company at below-market prices (then presumably make their money by selling the stock at market).
specifically, the price to the financier is something less than the prices over the last week or month (i.e. 85% of the average closing price for the last month, or 90% of the lowest closing price over the last..., etc.).
The financier has a guaranteed profit, and in fact has an incentive to short the stock down so that the company must issue them more shares to raise a given amount of cash.
In extreme cases you get a "death spiral" situation.
This financing is not as punitive in its terms as some, but that is like saying it is a "little pregnant".
Dutchess is one of the well-know "predator" firms that offer this kind of financing. That MMRF had to go this route indicates they could not get something better, at least not quickly.
Occasionally (once in a long whole, rare enough to be notable) you will see a company that pays off a Dutchess or Cornell or another financier of that ilk. Such stocks usually then get a pop, as it is like getting out from under an onerous burden.
These deals are not like having a fund or institution buy into a private placement of restricted or even free trading stock. In that case the financier is on our side in that they rpofit when the stock goes UP. Toxic financiers generally don't give a cra* about the company or its stock, and sell the shares they get as soon as they can. They can actually make more money, with almost no risk, if the stock goes down.
