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

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

Summary

• Fund 1 Investments, LLC, Pleasant Lake Partners LLC, and PLP Funds Master Fund LP have entered into cash-settled total return swap agreements with an unaffiliated third party, providing them with economic exposure to Tilly's Inc. (TLYS) common stock.
• These swaps do not grant the reporting persons the power to vote or direct the disposition of the underlying shares.
• On March 31, 2025, swaps were entered for 25,000 notional shares at a price of $2.2675 per share.
• On April 1, 2025, swaps were entered for 25,000 notional shares at a price of $2.2163 per share.
• On April 2, 2025, swaps were entered for 50,000 notional shares at a price of $2.2436 per share.
• The total number of derivative securities beneficially owned following these transactions is 2,207,027.
• The swap agreements expire on December 27, 2027, but can be automatically extended for successive 12-month periods unless written notice is provided.

Sentiment

Score: 5

Explanation: The document is a routine regulatory filing detailing derivative transactions. It doesn't contain overtly positive or negative information about the company's prospects, hence a neutral sentiment score.

Risks

• The value of the cash-settled total return swaps is dependent on the price of Tilly's Inc. common stock, which can be volatile.
• The reporting persons do not have voting rights associated with the notional shares, limiting their influence on company decisions.

Future Outlook

The swap agreements will automatically extend for successive 12-month periods unless written notice is provided at least 30 calendar days prior to the first extension and at least 15 calendar days prior to any subsequent extension.

Management Comments

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

Industry Context

Hedge funds and investment firms commonly use total return swaps to gain economic exposure to a company's stock without directly owning the shares, allowing them to profit from price movements while maintaining flexibility and potentially avoiding certain regulatory requirements associated with direct ownership.

Comparison to Industry Standards

• 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, such as Citadel and Renaissance Technologies, also utilize similar strategies involving derivative instruments to manage their investment positions.
• The size of the swap positions, involving 100,000 notional shares, is relatively small compared to the overall trading volume of Tilly's, suggesting a tactical rather than strategic investment approach.

Stakeholder Impact

• The increased economic exposure of Fund 1 Investments and related entities could potentially influence the trading volume and price of Tilly's Inc. stock.
• However, since the reporting persons disclaim beneficial ownership of the underlying shares, the direct impact on shareholders is limited.

Key Dates

Keywords

Tilly's Inc., TLYS, cash-settled total return swap, Fund 1 Investments, Pleasant Lake Partners, PLP Funds Master Fund LP, economic exposure, beneficial ownership, Form 4, derivative securities