Check out this thread about CU

[EVillageProwler]

THREAD

 

EVP

 

[jtryka]

Interesting development, my response on that thread:

 

My money would be on Needham doing this deal, since they cover the company with a "Buy" recommendation, and CLCT presented at the Needham conference in NYC in January. Roth Capital is also a local bank in Orange County that may also have an opportunity to participate, since doing a deal with them may bring additional research coverage, and more exposure. This is pure speculation however.

 

I am also not sure how well a bank or group of banks would take to this sort of deal. It seems quite risky as it would put CLCT in the finance business, and I'm sure any lenders would want assurance that things do not run amok (i.e. undercollateralized advances, aggressive lending to win business, etc.). It seems that banks and Wall Street get involved in this business it's a good sign of a top in the market, but let's hope that this is an isolated CLCT deal and not the beginning of the end of the coin bull market!

 

All of this by the way is pure speculation from me personally, and should not be construed as any sort of projection or investment recommendation.

[EVillageProwler]

What I don't understand is why CU didn't come right out and say that they need to borrow money. What's with all this jargon of "bank credit facility" and "debt financing"???

 

They need to borrow money. It's as simple as that!

 

EVP

 

[jtryka]

While you are basically right EVP, the point I got was they want to borrow, but maybe not all of it today. A credit facility would allow them the flexibility to borrow what they need today, with some left over for future needs. As far as jargon, that's the most effective tool we have to ensure our continued usefulness (read: job security for analysts!)

[gmarguli]

For example, we currently estimate that we could generate as much as $9.6 million of additional revenues annually if we could provide a consignment related advance program of $10 million."

 

Maybe I'm reading this wrong, but they can get $9.6 million more in consignments if they can get $10 million in credit to pay out in advance? Is this some sort of Enron style accounting? Why would they need more than 100% of credit to pay out? I'd assume that they would only pay out maybe 80% of the value, so a $10 million line should result in $12.5 million in new business.

[jtryka]

Greg,

 

I think it depends on how they record revenue (I have not looked at their accounting policies in depth) but if they only record their commissions as revenues, then that $9.6 million would equal only 15% or 20% of the total additional hammer prices they would auction. So at 15% commission, an additional $64 million in realized auction prices would result in the additional $9.6 million in revenues. I hope this makes more sense.

[gmarguli]

I can't imagine they could do $64M more in auction sales. That seems like a LOT. Does Heritage even do that much in auction sales a year?

[jtryka]

Remember, they are talking about all of CU combined, coins, cards, comics and currency. As for whether it's realistic, your guess is as good as mine.

[chrisfuccione]

I am lost on this. I know I am not a finacial wiz. But could this be the begining of the end for CU? Taking out a loan but not taking it all at once? CHRIS

[jtryka]

No Chris, taking out a line of credit as they are discussing here is very common in business. I am not reading anything else in this as far as any imminent demise. In fact it seems somewhat positive since they are planning to use it to increase auction revenues, it would be a different story if they wanted to use it for day-to-day operations. Looking at their cash flow statement, they had operating cash inflow of $1.7 million as of December, despite their losses on the income statement which is certainly a good thing (I would be worried if net income was positive and cash flow was negative).

[New_Horizons]

Many companies follow this line. They approach a credit facility, and seek the 'right' to borrow XXX amount of dollars. The lending institution gets the chance to look at the companies' books, and decide their creditworthiness... rarely, if ever, do companies receive all of their letter-of-credit funds. Prices charged are usually the prime rate, plus a percentage, based (somewhat) on their credit rating...

In this case, it appears the company wants the ability to draw on funds to pay consignors (usually half) for their coins (or whatever) to auction. As to whether it will garner them any 'new' business is yet to be seen...

The upside is additional funding. The downside is that others get to look at their books... a dicey ploy, in my mind, as it opens them up for the possibility of being denied, which-- in turn-- will most definitely be a 'death knell'...

While many companies follow this line, others float their own bonds...