$100m (+15m) sen unsec cb coming tonight from ML. Terms: 5yr, 3.75%-4.25% up 25-30%, full pctns. UOP = repay portion 4.5% cb. Stk -10% > 2Q earnings miss & lowered FY guidance (already -30% from 09/12 high b4 halting). Liq OK in s/term but CO needs 2 align biz 2 changing play patterns/tech. AIM = more Dreamplay type products combining digital content w/physical toys.
PF Cash = $218m
Debt = $200m
LTM EBITDA = 17m
FCF = 215k
Gross leverage = 11.7x
We’d assume L+800/CCC. $200mkt cap. ADV = meager 160k, -ve gamma/borrow issues potential = clearly not a model trade but we’ll use one 4 a sanity check. We’d cap 5 year vol at 30%. Theo = 105.6
Discontinued dividend vs 4% 2 own equity may bring x/over demand. Hard 2 monitize structure 4 hedge, this is 4 the turnaround believers.
JAKK is a small toy company struggling. Its 198mm market cap is dwarfed by its 2 largest public competitors HAS and MAT (5.9bn and 14.9bn).
– Use of proceeds for the deal is to repurchase 4½s.
– While the company will have ample cash in the near term, the company reported preliminary results well below expectations. The company sited kids playing on more electronic devices (iPad etc) and poor performance in their key properties (Monsuno and the Winx Club).
– A company with no hard assets and not a lot of EBITDA is a bad combination. And the company basically relies on Christmas to make all their money. Additionally, Wal-Mart is their largest customers (22% of sales). Wal-Mart continually pressures suppliers for better pricing.
– Our assigned spread L+800.