I rarely post on SAS though I have been following closely for a...

I rarely post on SAS though I have been following closely for a few years. The appearance of a convertible loan is ALWAYS something to take seriously. This type of finance has potential to completely destroy companies which are full of potential so they are usually only entered into when all other options have been exhausted.

Convertible note lenders are generally ruthless sharks with zero concern for the future of the borrower, so the first thing I always do is look into the lender and try to find other companies that have borrowed from them. Sometimes there are examples of companies that had to use convertible debt to make it through a tough patch and come out the other side to a bright future, but more often it goes the other way.

Relentless 3B's published for conversions > dumps on market that follow > buyers uninterested in buying since the next 3B is usually not far away bringing new lows.. its often not pretty to watch, and it can drag on and on...

A couple of my thoughts on this one:

• I cant find any information on the lender, so no history to look into. This is a concern, and hopefully a more detailed search can turn up something more
• Being an Israeli company with no obvious background to review, could they potentially be a newly formed business? Could they possibly be 'mates'? Established for this particular deal? Could the objective be to siphon funds out of SAS, or even access to cheap stock? (definitely not accusations/theories, just the type of questions I need to ask myself before being confident that I fully understand the deal)
• The amount is small. While we all know SAS need much more than this, it is encouraging to see they only took on a relatively small amount on these terms
• The floor price of 1.5c does appear at first glance to be a safeguard, however we should also ponder what happens if the price does fall below that. Either way, it is payable in cash at the end, and the lender clearly has first priority over any other debt. In my experience, 1.5c could easily be hit after a few conversions and they would know this, so I would be wondering why they (both parties) agreed on the floor price with no time limit.
• There is always potentially more pieces of the puzzle that fall outside our field of view, so we shouldn't throw the baby out with the bath water. Eg: Is there some other arrangement in the wings that might get things moving, and this deal is a temporary bridge and all part of a solid strategy for moving forward? Who knows

That's just a few things to think about, but the underlying message is always tread carefully whenever you see convertible lending. It can be brutal, so as investors it pays to have eyes wide open.