It won’t be easy for Zip Co to brush the mess created by its decision to seek a merger with Sezzle under the carpet.
This sits as a liability on its balance sheet and Sezzle says the total interest paid on what’s owed is reflected on the interest expense line of its cashflow statement. The merchant fees earned on what’s owed is booked through its income statement.The interest on the $141 million liability is at a fixed 3 per cent margin above the US’s secured overnight funding rate , which is a benchmark lending measure similar to the overnight cash rate.
The Fed’s dot plot chart projects its cash rate to reach 3.4 per cent by the end of 2022 to suggest Sezzle could pay as much as 6.4 per cent on the $141 million it owes merchants by the end of the year. Zip already has big debt problems itself. In April 2021, it issued $400 million in convertible notes on the Singapore stock exchange, which give holders the option to put the notes back to Zip at 109.4 per cent of the principal after four years.
Zip’s chairman Diane Smith-Gander provided shareholders a single sentence statement in explanation for the decision to scrap the merger.
Let me guess - someone realised that BNPL companies should basically be valued at highly leveraged consumer finance company multiples?