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08-Jun-2016 18:14

The share price has already nearly doubled since those purchases.

Because of its increased leverage, the market has been very focused on RHs “capital structure”. As a result, when RH suddenly announced three weeks ago that it was already paying down its 0 million second lien term loan (within just 3 months of it being issued), the stock quickly shot up 20 points from the s to the s, quickly hitting new 52 week highs.

In May of 2017, RH’s CEO Gary Friedman was quietly awarded a staggering nine figure incentive package if he can somehow engineer the share price to 0 or higher.

Precisely how he achieves this goal is entirely irrelevant.

There are a variety of announcements that Friedman could be expected to make at (or in advance of) this “”.

The most obvious announcement would be that RH would announce the simple approval of the next leg of its ongoing share buyback.

And yet clearly that was a just relatively small deleveraging.

Of RHs remaining debt, the majority (0 million) is in the form of convertible debt with strike prices of 6 and 8.

This is how we have gotten from the s to the s in just 8 weeks. In the past, RH has made very visible use of such events to make announcements which then sent the stock sharply higher.

What I will describe below is how Friedman is now using a combination of positive cash flow and new debt to further reduce the share count.

Friedman is effectively conducting a “stealth/quasi/creeping” going private in order to drastically reduce share count.

Right now some shorts appear to be taking the view that “if RH was a good short at , then it must be an even better short at ”.

But in fact, the share count has been reduced so aggressively (via share buy backs) that the market cap of RH is only up by 30-40% since April.

This is how we have gotten from the s to the s in just 8 weeks. In the past, RH has made very visible use of such events to make announcements which then sent the stock sharply higher.What I will describe below is how Friedman is now using a combination of positive cash flow and new debt to further reduce the share count.Friedman is effectively conducting a “stealth/quasi/creeping” going private in order to drastically reduce share count.Right now some shorts appear to be taking the view that “if RH was a good short at , then it must be an even better short at ”.But in fact, the share count has been reduced so aggressively (via share buy backs) that the market cap of RH is only up by 30-40% since April.The shares repurchased by RH were bought at far lower levels and much of these purchases were conducted with cash (not just debt), such that even the comparable rise in enterprise value is also far much lower that this sharp rise in the share price.