Rusty's Question on MarathonRusty - Happy Thanksgiving! Sorry I didn't respond to your question a few weeks ago. I needed a sabatical from the never ending negativity around THTX, but I've read all the comments and am caught back up. In my experience, lenders like Marathon, will be hyper-focused on protecting their loan asset above anything else. They will not give consideration to the warrants they were given or any thought around strategy at taking over the company on the cheap. What they would do in the event of concern over default is push for any solution that protects the loan first; above any interest of the shareholders, in spite of their own warrants. And they are in the position to control outcomes with a first priority lien position on all company assets. Companies like Marathon who specialize in lending to companies who are considered high risk, highly leveraged, or repayment is based on fairly drastic operational changes that the company has promised to do have very tight conditions associated with their loans. That's what we saw in this case. So, to have had two covenant breaches within the first year and to have to ask for flexibility on those going forward including a third covenant that was proactively managed around would not have given a lot of confidence. I would speculate that Marathon was putting enormous pressure on THTX in spite of appearing to be cooperative and likely contributed to the reason behind the capital raise. Again, THTX gets all the blame for putting themselves in that position. I think what looked like Marathon believing THTX's repayment ability was likely them providing the necessary runway so that THTX could get through a raise and reduce Marathon's risk. Remember how tight they kept the timelines on the liquidity covenant up until right before the capital raise?
Marathon has a fiduciary responsibility to act as a lender first and will have a certain code of ethics in how they do business. They raise capital and have investors of their own to fund these loans Default occurred, but they didn't foreclose. They could eventually choose to foreclose in the event of material decline in the financial condition, continued defaults, etc, and that's where I was initially thinking the biggest risk was. Marathon appears to specialize in LifeScience lending and would potentially have access to suiters, who they could directly facilitate a sale of the company that repays their loan proceeds, without regard to shareholders. There would be a lot of legal processes to work through first, but other than the time it would take to complete those legal processes, there's zero doubt Marathon would come out on top with control of the assets. Lender's are usually terrible at liquidating a company's assets and in most cases the best solution is to work with management to transition the company as a going concern.
The capital raise probably took the micro-management by Marathon off the table for now, but THTX will still need to manage their business well. It appears most of the time-sensitive requirements are now mostly out of the way.
What I still find bizarre and intriguing at the same time is why THTX raised so much more capital than they had communicated they needed? They still need to explain that. The flipflopping on their strategy gives zero confidence to any investor.