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 cash-settled total return swap agreements, without obtaining voting or disposition rights over the underlying shares.

Summary

• Fund 1 Investments, LLC, Pleasant Lake Partners LLC, and PLP Funds Master Fund LP have filed a Form 4 detailing changes in beneficial ownership of Tilly's, Inc. securities.
• The reporting persons entered into cash-settled total return swap agreements with an unaffiliated third party, providing economic exposure to 25,000 notional shares of Tilly's common stock on both April 11, 2025, and April 14, 2025.
• The price per share for the first swap was $1.8838 and $1.8064 for the second swap.
• These swaps give the reporting persons economic results comparable to ownership but not the power to vote or direct the disposition of the shares.
• The reporting persons disclaim beneficial ownership of the subject shares except to the extent of their pecuniary interest.
• 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.
• Following the reported transactions, the number of derivative securities beneficially owned is 2,232,027 and 2,257,027 respectively.
• The swaps are set to expire on December 27, 2027, subject to potential extensions.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The increased economic exposure suggests a potentially positive outlook, but the disclaimer of beneficial ownership and the use of swaps introduce some caution.

Positives

• The increased economic exposure suggests a potentially positive outlook on Tilly's, Inc. by Fund 1 Investments, LLC and related entities.

Risks

• The reporting persons disclaim beneficial ownership of the subject shares except to the extent of their pecuniary interest, indicating a limited direct stake in the company's performance.
• The use of cash-settled swaps introduces counterparty risk with the unaffiliated third-party financial institution.

Future Outlook

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, at least 30 calendar days prior to the first extension and at least 15 calendar days prior to any subsequent extension, not to so extend the expiration date.

Industry Context

The use of cash-settled total return swaps is a common strategy employed by investment firms to gain economic exposure to a company's stock without directly owning the shares or having voting rights. This allows for leveraged exposure and can be used for hedging or speculative purposes.

Comparison to Industry Standards

• Hedge funds and investment firms frequently use total return swaps to gain exposure to equities without the capital outlay of direct ownership, similar to strategies employed by firms like Pershing Square or Third Point.
• The size of the position, 25,000 shares per swap, is relatively small compared to the overall market capitalization of Tilly's, but the aggregate of 2,257,027 derivative securities beneficially owned is more significant.
• The use of swaps to gain economic exposure is a common practice, but the specific terms and conditions, such as the extension clauses, are tailored to the individual agreement.

Stakeholder Impact

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

Key Dates

Keywords

Tilly's, cash-settled total return swap, economic exposure, Fund 1 Investments, beneficial ownership, derivatives, TLYS