Form 4: Investment Funds Increase Economic Exposure to Tile Shop Holdings Through New Swap Agreements

Fund 1 Investments, LLC and its affiliates have reported increased indirect beneficial ownership in Tile Shop Holdings, Inc. (TTSH) common stock and entered into new cash-settled total return swap agreements, enhancing their economic exposure to the company.

Summary

• Fund 1 Investments, LLC, Pleasant Lake Partners LLC, and PLP Funds Master Fund LP, all identified as Directors and 10% Owners of Tile Shop Holdings, Inc. (TTSH), have filed a Form 4.
• The filing details indirect beneficial ownership of 11,855,745 shares of common stock held for PLP Funds Master Fund LP and 1,002,207 shares for an unaffiliated private investment vehicle.
• The reporting persons entered into three new cash-settled total return swap arrangements with an unaffiliated third-party financial institution.
• These swaps provide economic exposure to an additional 40,000 notional shares of TTSH common stock across three transactions: 20,000 shares at $6.3773 on June 4, 2025; 10,000 shares at $6.4035 on June 5, 2025; and 10,000 shares at $6.4070 on June 6, 2025.
• Following these transactions, the total beneficial ownership of derivative securities (cash-settled total return swaps) is 772,690 notional shares.
• The swap agreements provide economic results comparable to ownership but do not grant voting or disposition power over the underlying shares.

Sentiment

Score: 7

Explanation: The increased economic exposure by significant insiders (directors and 10% owners) through derivative instruments suggests a positive outlook on the company's future performance, despite the disclaimer of voting power over the underlying shares.

Positives

• Increased economic exposure by significant shareholders (Directors and 10% owners) suggests continued confidence in the company's future performance.
• The use of cash-settled total return swaps allows for increased exposure without directly impacting the voting structure or market float of the underlying shares.

Negatives

• The reporting persons disclaim beneficial ownership of the underlying shares for the swaps, indicating they do not control the voting or disposition of these shares.

Risks

• The economic exposure through total return swaps carries counterparty risk with the unaffiliated financial institution.
• The reporting persons do not have voting or direct disposition power over the shares underlying the swap agreements, limiting their direct influence on corporate governance for those specific shares.

Future Outlook

The cash-settled total return swap agreements have an initial expiration date of April 7, 2028, but are structured to automatically extend for successive 12-month periods unless one party provides timely written notice not to extend. This indicates a potential long-term economic interest in the company's performance.

Management Comments

• "Each of the Reporting Persons disclaims beneficial ownership of the shares reported herein except to the extent of its or his pecuniary interest therein."
• "The swap agreements provide the Reporting Persons with economic results that are comparable to the economic results of ownership but do not provide the Reporting Persons with the power to vote or direct the voting or dispose of or direct the disposition of the shares of common stock that are the subject of the swap agreements."

Industry Context

This filing reflects an investment fund's strategy to gain economic exposure to a company (Tile Shop Holdings) without directly acquiring voting control of the underlying shares. This is a common practice among institutional investors and hedge funds using derivatives to manage portfolio exposure, leverage, or hedge positions, often signaling a bullish view on the underlying asset's price performance.

Comparison to Industry Standards

• N/A. This Form 4 details specific transactions by an insider and does not provide financial results or operational metrics that can be directly compared to industry benchmarks or competitors like Floor & Decor Holdings (FND) or Lumber Liquidators (LL). The use of total return swaps is a standard financial instrument for gaining synthetic exposure.

Related Party Transactions

• Fund 1 Investments, LLC serves as managing member of Pleasant Lake Partners LLC.
• Pleasant Lake Partners LLC serves as investment adviser to PLP Funds Master Fund LP and an additional private investment vehicle.
• Jonathan Lennon serves as managing member of Fund 1 Investments, LLC.

Stakeholder Impact

• Shareholders: The increased economic exposure by significant shareholders (directors and 10% owners) may be viewed positively as a sign of confidence in the company's prospects. However, the use of swaps means these specific transactions do not directly impact the voting power or float of the common stock.

Next Steps

• Monitoring of the automatic extension of the swap agreements unless notice is provided not to extend.
• Potential future adjustments to economic exposure by the reporting persons.

Key Dates

Recommendation

Keywords

Tile Shop Holdings, TTSH, SEC Form 4, Beneficial Ownership, Total Return Swap, Derivative Securities, Insider Trading, Investment Fund, Fund 1 Investments, Pleasant Lake Partners, PLP Funds Master Fund LP, Equity Exposure