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

Fund 1 Investments, LLC and related entities report increased economic exposure to Tilly's Inc. common stock through cash-settled total return swaps, while disclaiming beneficial ownership of the underlying shares.

Summary

• Fund 1 Investments, LLC, Pleasant Lake Onshore Feeder Fund LP, and Pleasant Lake Partners LLC have reported changes in their beneficial ownership of Tilly's, Inc. (TLYS) securities.
• The reporting persons have entered into cash-settled total return swap agreements with an unaffiliated third party financial institution.
• These swaps provide economic exposure to a total of 88,034 notional shares of Tilly's common stock.
• The swaps do not provide the reporting persons with voting or disposition rights over the underlying shares.
• The reporting persons disclaim beneficial ownership of the subject shares except to the extent of their pecuniary interest.
• On January 2, 2025, Pleasant Lake Onshore Feeder Fund, LP contributed all of its securities in the Issuer to the Master Fund in a transaction exempt from reporting under Rule 16a-13.
• The expiration date of the swap agreements will be automatically extended for successive 12 month periods unless one party provides written notice to the other party.

Sentiment

Score: 5

Explanation: Neutral sentiment as the document primarily reports transactions without expressing a strong positive or negative view on the company.

Positives

• Increased economic exposure suggests a potentially positive outlook on Tilly's Inc. by Fund 1 Investments, LLC.

Negatives

• The reporting persons disclaim beneficial ownership of the underlying shares, limiting their direct influence on the company.

Risks

• The value of the cash-settled total return swaps is subject to market fluctuations in the price of Tilly's Inc. common stock.
• Counterparty risk exists with the unaffiliated third party financial institution involved in the swap agreements.
• Changes in regulations could impact the use of cash-settled total return swaps.

Future Outlook

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

Industry Context

Hedge funds and investment firms commonly use cash-settled total return swaps to gain economic exposure to a company's stock without directly owning the shares. This strategy allows them to participate in the potential upside while maintaining flexibility and potentially avoiding certain regulatory requirements associated with direct ownership.

Comparison to Industry Standards

• Cash-settled total return swaps are a common tool used by investment firms like Fund 1 Investments to gain exposure to companies like Tilly's without direct ownership.
• Other firms that use similar strategies include hedge funds and private equity firms that seek to manage their risk and capital efficiently.
• The specific terms of the swap agreements, such as the notional amount and expiration date, are tailored to the investment strategy of Fund 1 Investments.

Stakeholder Impact

• The increased economic exposure could potentially influence investor sentiment towards Tilly's Inc.
• The swap agreements do not directly impact employees, customers, or suppliers of Tilly's Inc.

Key Dates