Form 4: Fund 1 Investments, LLC Increases Economic Exposure to Tilly's, Inc. Through Cash-Settled Swaps

Fund 1 Investments, LLC, along with related entities, has increased its economic exposure to Tilly's, Inc. through a series of cash-settled total return swap agreements, while disclaiming direct beneficial ownership of the underlying shares.

Summary

• Fund 1 Investments, LLC, along with Pleasant Lake Partners LLC and PLP Funds Master Fund LP, has entered into multiple cash-settled total return swap agreements with an unaffiliated third party.
• These swaps provide economic exposure to Tilly's, Inc. common stock without granting voting rights or direct ownership of the shares.
• The transactions occurred on January 16, 2025, January 17, 2025 and January 21, 2025.
• The swaps involve a total of 50,000 notional shares of Tilly's, Inc. common stock.
• The prices per share for the swaps were $4.156, $4.15, and $4.1485 respectively.
• Following these transactions, the reporting entities have economic exposure to 925,489 notional shares of Tilly's, Inc. common stock.
• The swap agreements expire on December 27, 2027, but can be extended by 12-month periods unless either party provides notice of non-extension.

Sentiment

Score: 6

Explanation: The document reflects a neutral to slightly positive sentiment as it indicates increased economic exposure to Tilly's, Inc. by Fund 1 Investments, LLC and related entities, but it does not imply a strong bullish or bearish outlook. The use of swaps is a common financial strategy.

Positives

• The increased economic exposure suggests a positive outlook on Tilly's, Inc. by Fund 1 Investments, LLC and related entities.
• The use of cash-settled swaps allows for economic exposure without the need for direct share ownership.

Negatives

• The reporting entities disclaim beneficial ownership of the underlying shares, indicating they do not have direct control or voting rights.
• The use of swaps introduces counterparty risk with the unaffiliated third-party financial institution.

Risks

• The value of the swaps is tied to the price of Tilly's, Inc. common stock, exposing the reporting entities to market risk.
• The swap agreements are subject to counterparty risk with the unaffiliated financial institution.
• The potential for non-extension of the swap agreements could impact the reporting entities' economic exposure.

Future Outlook

The swap agreements have an initial expiration date of December 27, 2027, but can be extended for successive 12-month periods unless either party provides notice of non-extension.

Management Comments

• The Reporting Persons disclaim beneficial ownership of the Subject Shares except to the extent of its or his pecuniary interest therein.

Industry Context

The use of cash-settled total return swaps is a common strategy for investors seeking economic exposure to a company's stock without direct ownership or voting rights. This is often used by hedge funds and other sophisticated investors.

Comparison to Industry Standards

• The use of total return swaps is a common practice among hedge funds and investment firms to gain economic exposure without direct ownership, similar to strategies employed by firms like Citadel or Millennium Management.
• The specific terms of the swaps, such as the expiration date and extension clauses, are typical for these types of agreements.
• The disclaiming of beneficial ownership is standard practice when using swaps to avoid regulatory reporting requirements associated with direct ownership.

Stakeholder Impact

• The increased economic exposure could be viewed positively by shareholders as it indicates confidence in the company by a significant investor.
• The transactions do not directly impact employees, customers, or suppliers.

Key Dates

Keywords

cash-settled total return swap, Tilly's, Inc., economic exposure, Fund 1 Investments, LLC, Pleasant Lake Partners LLC, PLP Funds Master Fund LP, derivative securities, beneficial ownership