RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Dilution is coming in my opinion. However it doesn’t meanRandomGuy25 wrote: The issue Hexo is facing is why the common term for this is a "death spiral."
Would Hexo be in a strong position if it did not have any debt right now and had the same enterprise value? They would certainly be in a much stronger position.
But that does that mean that you should buy in advance of getting there, or hold? Not necessarily, because flow rather than value is what determines the level of dilution that will occur. The Noteholder will hold their foot down on any emerging flow as necessary in order to ensure that they receive an all cash outcome on the redemption, even though they received shares. So the amount of dilution for each subsequent redemption event can go up if the outflow from the Noteholder exceeds the inflow from retail. It makes value irrelevant except as it relates to a potential takeout transaction. If there is no takeout transaction, and inflow does not increase, then you just take greater and greater dilution even as the outstanding note amount declines.
That is why people exit once they see something like this happening, and why it is called a death spiral. It becomes a self-fulfilling prophecy.
The Noteholder sells before receiving the shares, but after receiving irrevocable notice that they will be receiving sdhares. So they do not sell the shares after receipt, but they do sell them after being guaranteed to receive them at the VWAP that they can then dictate.
If Hexo was being transparent, they would be required to disclose each equity redemption notice received by the Noteholder to let people know when this is happening. For some reason, the exchange is not requiring this, even though at this point it is close to 10% dilution each time such notice is received. Alternatively, they could simply be running the ATM in order to cut out the middleman of the Noteholder selling the shares in advance.
RandomGuy good to have you provide your knowledge of these complex arrangements. As everyone knows or should know, Hexo is and has been in a death spiral as the fundamentals right now dictate that. Others have been reading charts and failing miserably at cost averaging from $8 all the way down, and its been hard to watch them slowly implode.
Even the most bearish never thought 77 cents - 19 cent pre reverse split was possible but it is and looks like it will continue its decent
Some of us have been warning of the risks of debt, the burden of the Note for a long time but you know those long term hold longs who think costs averaging is the answer, they can't be wrong. Why Hexo doesn't go back to the ATM is something I touched on yesterday and still wonder wtf as the current process of redemptions is indeed a major factor in the death spiral.