This piece is being created in response to a StockTwits thread that shows how naive some investors can be, and how obtuse they can be even when given an opportunity to learn how things on Wall Street work. I will post the conversation, and then give the reality of how things work:
Eddomovit - "$MNKD not credible until financing issue resolved. A one year runway is required for stock price to defeat short thesis. Sell and lease back plant
Spencer - "A sale/leaseback is possible, but will not bring 1 years worth of cash"
Eddomovit - "part sale/leaseback, part ATM, part convertible bonds, part debt reduction for shares, whatever. it all adds up. Just get it done
Spencer - "currently building is tied to Deerfield. Gotta clean that up first to make sale/leaseback possible. Tough position to be in"
Eddomovit - "Everything is negotiable, especially with Deerfield, who needs MNKD to succeed. Deerfield is in a tough position too."
Spencer - "Deerfield is not in a tough position. Deerfield does not need MannKind to succeed. MNKD owes Deerfield about $25 million. Deerfield simply takes shares, sells them and gets their money, They can oft short ahead of getting shares to make even more."
Eddomovit - "Flynn owns millions of shares. If he keeps selling SPdrops and risk of BK increases. Does he want to $25 m as his shares drop? Deerfield and MannKind must play nice or they will boith suffer. MNKD will show how they are extending runway tonight."
Spencer - "Oh My. Flynn does not own shares. He had to file ownership because they accepted shares. Deerfield sells the shares. Deerfield will not suffer."
Eddomovit - "Flynn owned 15m shares on July 17th. Pretending to know he sold them is "fake news". Show me the news"
Spencer - "Oh my God! Look at the history of Deerfield and what they do with shares. Don't be naive."
Eddomovit - "No one who owns shares of MannKind will suffer unless they sell. It will be profitable as soon as it takes 1% market share. Just as I thought. You are more hot air than substance. Flynn knows MannKind better than anyone and he owns 10%"
Eddomovit is a classic example of an investor that knows just enough to be a danger to himself and others. At the beginning of his posts, he made waht are good points. MannKind does need a 1 year runway. Where he goes off the rails is when he starts to discuss Deerfield.
Deerfield is a massive company with deals across the biopharma sector. The company is in the business of loaning money, collecting that money back, and getting interest in the process. Deerfield is responsible to their investors, and owning and holding stock is not their method of operations.
First things first. Under no circumstance will Deerfield suffer. Deerfield is owed about $25 million dollars, and MannKind has put up just about everything as collateral on that money. Deerfiueld is senior to everyone on the debt, and MannKind has more than enough authorized shares to take care of Deerfield debt and interest.
Secondly, Deerfield does not need MannKind to be a success for Deerfield to prosper. Deerfield has many deals, but even setting all of thoise aside, Deerfield will extract its monies and do so whether MannKind is a success or a failure.
Third, Deerfield does not hold shares. It had to file for ownership of a stake greater than 10% because it took possession of the shares as payment for debt. The history of Dererfield across dozens (if not hundreds) of companies is to sell off shares quickly. Why? Because the fund that was created was a fund that loans money and collects interest. It is not a fund that speculates on stock movement. Even in its history with MannKind Deerrfield has not held shares. It typically flips them into cash rather quickly.
Here is the underbelly of how things work. This is hypotetical, but this is what typically happens. Deerfield knows that a company is short on cash and is going to want to use shares to pay. Lets say the price of the stock is $2 per share, and the debt payment is $10 million. Deerfield shorts 5 million shares at $2 and collects its $10 million from the market. The stock price dips to $1.80 on street knowing debt is due as well as the additional volume from the short play. The company gives Deerfield 5,555,555 shares to cover the debt payment. Deerfield uses 5 million of those shares to cover its short position at $1.80, and sells the other 555,555 shares at market prices to turn a profit. Deerfield was owed $10 million but through the maneuver, Deerfield collected $11,000,000 via shorting, using debt repayment shares to cover, and then selling remaining shares on the market.
Another method. Deerfield is owed $10 million. It accepts shares as payment, and then flips those shares onto the market to extract its cash. Meanwhile, as part of the negotiation, it gains leverage on other things such as payment schedule, obtains more converts or warrants, etc. Either way, Deerfield is not holding shares for any length of time, and is certainly not gambling on the prospects of a stock.
Lastly, people need to learn how to read SEC documents. They are confusing, but one can learn if they take the time. I suspect that Eddomovit is miscalculating the shares Deerfield holds
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.