RE:RE:Doable and necessary I have been busy but wanted to get back to you on this older comment. My suggestion is not as relevant as it seemed when I mentioned it to THTX but I thought I should give you mythoughts on it since you made a good effort to comment on my idea. I still don't have a lot of time to give a full response as this is a complicated matter but I will throw out a few things in case this becomes relevant again in the future.
I think what you are saying is that THTX should just proceed forward with paying off the Marathon debt as scheduled and not dilute via a common offering or consider my idea of a straight preferred stock with an 8% yield. On the assumption I got that correct, here are some thoughts.
1.) Given the announcement they are in a positive EBITDA position already, sooner than expected, and that they generated at least $3 million in new cash in August alone, just paying off the Marathon debt now seems like it is the best alternative for THTX. But I really am curious about how they generated that $3+ million in cash in August and also how muh cash they are able to consistently generate after interest costs between now and August 2024.
2.) The original idea was to put THTX in a much better cash flow position and, depending on what the financials tell us when they report later this month, there could well still be a need for that.
3.) I suppose it would be possible to negotiate voting rights for the preferred. Thsi would be a seetheart deal for THTX and would really help them, so they might agree to that.
4.) My idea was put forward as something that would mostly be attractive to current shareholders looking to give THTX a hand up out of its financial mess so that THTX's stock would no longer trade like it was going belly up. And it would achieve that goal. Shareholders participating in the deal would be mostly doing so to get a return on their commos shareholdings while being paid an admittedly below market rate on the preferred. After the deal was done, any shareholder participating in it would likely have been better off as the bankruptcy question would be taken off the table. I also have many clients who would like an 8% return on the preferred knowing the chances of it being paid were quite high.
5.) The preferred dividend is not tax deductible like the debt interest is but that is not an issue at this point for THTX and an interest rate that is half of that of the Marathon debt more than compensates for that anyway if THTX ever does become a tax paying company, which seems to be a long way in the future given their tax loss carryforwards and the fact the company will likely not be bottom line profitable for a while yet.
6.) From a future cash flow perspective, the preferred is clearly superior as it is not a loan that needs to be repaid. Lower interest and no principal payments means a ton of extra cash flow for THTX, perhaps allowing them to retain more of the future benefits from TH-1902 in any partnership negotiations which will be consummated if TH-10902 shows promise inthe restarted trial.
7.) THTX is still an unprofitable company now and my suggestion would only help them get to profitability sooner (preferred dividends, unlike interest expense on debt, are not an expense item on the income statement - they only affect cash flow statement). I cannot see any way in which the preferred would delay them getting to profitability, just the opposite.
8.) The idea with my suggestion is to avoid dilution via a straight preferred as we are looking to boost the value of the common share price. So, I would be against a convertible or a cumulative preferred share.
9.) Marathon's debt structure would still initially be in a priority lien position due to the still unpaid $20 million second tranche but it would no longer represent a real risk. THTX would also be in a much better position to wipe out the remaining $20 million in Marathon debt sooner as a result of no longer needing to make principal payments on the first $40 million tranche and the "interest" costs on the preferred being half that of the Marathon debt it replaced (actually less than half as I assume THTX would be using some of its cash to pay down the $40 million first tranche).
No need to respond as I think this is no longer relevant, at least right now, but I just wanted to respct your thoughtful initial response by sharing my thoughts on it.
PWIB123 wrote: My thoughts on the preferred. I agree with scarlet1967's sentiment. I don't think the company has done all it should do yet. I don't like not having the same voting rights as common shareholders. I suppose you could argue that swapping an interest rate on debt for a preferred dividend is a similar expense, but it's not exactly the same thing when we are thinking about future cash flow and potential additional funds needed. I'm not so sure we don't end up back as an unprofitable company depending on the outcomes of the clinical trials. And that may be ok in those circumstances, but that dividend could end up taking away from needed cash flow. I suppose you could utilize cumulative shares and/or convertible shares, but in the end that's dilution. Marathon's debt structure would still be in a priority lien position, and I'm not sure 8% is enough of a risk premium.