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Understanding Conn's Newest Move

If you were perplexed as to why Conn's (NASDAQ: CONN) stock popped 11% last Friday, I'm here to fill you in. On Friday, the company announced that it has commenced a consent solicitation for its 7.250% notes. The gist of the agreement is that the company would like to make a small payment to the noteholders in exchange for some amendments to the original terms. Although the headline states "consent solicitation," the company already reached tentative agreement with 54% of the noteholders, so it is unlikely that this consent solicitation would be rejected.

What You Get

The focus of the new agreement is that the company gets to increase the buyback limit from $75 million to $375 million. If we look at it purely with a short-term view, this implies increases in demand for Conn's shares in the short-term, creating temporary upward pressure in the stock price. Naturally, short-sellers would exit to prevent themselves from a short-squeeze (14 days to cover at the end of September). However, even if we ignore this short-term phenomenon, I believe that this deal can still create shareholder value in the long-run.

From a value perspective...


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