MSP Recovery Announces Strategic Term Sheet Providing Prospective Liquidity and Restructuring of Existing Agreements to Remove Corporate Guaranteed Debt by over $1.2 Billion as Well as New Agreements Aimed at Driving Future Growth

Rhea-AI Summary

MSP Recovery (NASDAQ: MSPR) has entered into a strategic term sheet for comprehensive restructuring transactions with Hazel Partners Holdings and Virage Capital Management. The deal includes:

- Reduction of over $1.2 billion in corporate guaranteed debt
- Access to $9.75 million bridge funding (with $6.5M available through July 2025)
- Up to $25 million working capital for a New Servicer entity

Key components include:
- Formation of New Servicer subsidiary with independent management
- Virage to receive 43% equity stake in exchange for waiving claims
- Conversion of approximately $144 million principals' debt to equity
- Extension of debt obligations to November 2026
- Annual cost reduction estimated at $5.6 million

The transaction closing is expected by April 30, 2025, subject to definitive agreements, regulatory approvals, and other conditions.

Positive

• Significant debt reduction of over $1.2 billion in corporate guaranteed debt
• Access to immediate funding: $9.75M bridge funding and $25M working capital
• Annual cost reduction of $5.6M through New Servicer operations
• Extension of debt obligations to November 2026
• Conversion of $144M principals' debt to equity, improving balance sheet

Negative

• Significant equity dilution with Virage receiving 43% stake
• New Servicer entity will be outside company's control with independent management
• Transaction completion subject to multiple conditions and approvals
• Company remains dependent on external funding for operations

Insights

Financial Restructuring Analyst

MSP Recovery's announced restructuring represents a significant financial overhaul designed to address what appears to be severe balance sheet distress. The headline $1.2 billion debt guarantee removal and extension of payment deadlines to November 2026 provides critical breathing room for a company clearly struggling with its debt obligations.

The complex transaction architecture reveals several crucial elements: (1) Virage Capital acquiring 43% equity stake in exchange for releasing claims worth approximately $1.2 billion, (2) company principals converting $144 million of debt to equity, creating substantial dilution for existing shareholders, and (3) formation of a largely independent servicing entity that effectively shifts operational control outside the parent company.

The $9.75 million bridge funding ($6.5 million still available) and potential $25 million working capital facility for the new servicer provide temporary liquidity, but the numerous contingencies and approvals required for deal completion signal significant execution risk.

This restructuring likely prevents a near-term financial crisis but transfers substantial equity to creditors and operational control to a new entity. While necessary for survival, this indicates the company faced severe financial distress requiring radical intervention. The depth of restructuring required suggests fundamental challenges with the underlying business model that may persist even after deleveraging.

Corporate Governance Specialist

This complex corporate restructuring fundamentally alters MSP Recovery's governance structure and operational framework. The creation of a "New Servicer" subsidiary with an independent board and management team effectively transfers control of core business operations away from the parent company, representing a significant concession to creditors.

The governance changes are particularly notable - the New Servicer will have an independent board with only one member from MSP Recovery, and creditor Hazel will approve the independent directors. This unusual arrangement essentially gives creditors operational oversight while the parent company retains intellectual property ownership but operational control.

The debt-to-equity conversions dramatically reshape the ownership structure, with Virage gaining a 43% equity position and executives John Ruiz and Frank Quesada converting approximately $144 million in debt to equity. This transaction structure preserves the company as a going concern but at the cost of existing shareholder dilution and diminished corporate autonomy.

The multiple funding tranches tied to performance milestones create a governance mechanism where capital flow depends on operational execution, effectively putting creditors in control of the company's financial lifeline. This arrangement, combined with the extension of debt maturities to 2026, suggests creditors saw more value in restructuring than forced liquidation, but imposed strict terms that significantly constrain management's autonomy.

MIAMI, April 10, 2025 (GLOBE NEWSWIRE) -- MSP Recovery, Inc. (NASDAQ: MSPR) (“MSP Recovery” or the “Company”), a Medicare, Medicaid, commercial, and secondary payer reimbursement recovery and technology leader, is pleased to announce that it entered into a strategic term sheet (“Term Sheet”) agreeing to several restructuring transactions with Hazel Partners Holdings, LLC (“Hazel”), Virage Capital Management (“Virage”), and their respective affiliates. These initiatives are designed to reduce costs of the Company through a New Servicer entity (as defined below), deleverage the Company by converting certain debt of significant creditors into equity and release $1.2 billion of debt guaranteed by the Company, provide access to $9.75 million of bridge funding to the Company (of which $6.5 million remains available through July 2025) and up to $25 million working capital for New Servicer, and to focus the Company’s operations, through the New Servicer, on the core business model of pursuing recoveries under the MSP Laws so that it can achieve its long-term recovery goals. The Company has also obtained a payment extension and waiver from YA II PN, Ltd. (“Yorkville”), which allows the Company to continue its original core business as well as develop new and existing tools. In addition to the summary herein, additional information is set forth in greater detail in the Company’s Current Report on Form 8-K, which was filed with the Securities and Exchange Commission on April 10, 2025. Execution of definitive agreements and closing of the restructuring are expected no later than April 30, 2025.

The transactions outlined below are subject to, among other things, further negotiation and the execution of definitive agreements, regulatory approvals, certain third-party consents and approvals, and shareholder approvals if required by the Nasdaq Stock Market. The obligation of Hazel to enter into definitive documents is subject to the satisfaction of various conditions precedent, at the sole discretion of Hazel, including, but not limited to, satisfactory finalization of due diligence and all required internal approvals, receipt of certain third-party consents required, and finalization of documentation. Consummation of the transactions contemplated by the Term Sheet are also subject to additional fundings by other parties and certain debt concessions by other stakeholders. As a result, there can be no guarantee that the transactions contemplated by the Term Sheet will be consummated.

Transactions Overview

In collaboration with Hazel and Virage, MSP Recovery has agreed to initiate a comprehensive corporate restructuring and funding plan designed to reinforce its financial stability, support operational growth, and streamline recovery servicing. Key components of the contemplated restructuring include:

• Operational Funding to New Servicer
  Hazel would provide up to $25 million in operational funding through a structured facility to the New Servicer, funded in tranches of up to $1.75 million per month, subject to meeting certain milestones beginning on September 2025, with a maturity date of June 30, 2027. This funding would create a new servicer subsidiary of MSP Recovery (the “New Servicer”) on a go forward basis and will support the buildout of a dedicated team to provide technology-enabled recovery services for Medicare Secondary Payer (MSP) claims and similar matters. The New Servicer’s directors and management team would be independent from the Company and outside of its control. The team would manage a scalable servicing platform built on MSP Recovery’s proprietary data systems.

• Operational Funding to Company
  Hazel has agreed to provide up to $9.75 million of bridge funding to the Company (of which $6.5 million remains available through July 2025) in additional bridge loan funding to the Company under the existing Operational Collection Floor facility. This brings Hazel’s total funding under the facility to $25.75 million. Beyond July 2025, the MSP Principals have committed to pledge $25 million of collateral to backstop additional working capital requirements of the Company, in addition to the Company’s existing sources of funding such as cash proceeds from the sale of Class A Common Stock to Yorkville pursuant to the Yorkville SEPA and proceeds from claims recoveries, subject to lien repayment on certain claims. In addition, the Company’s annual costs, after currently planned cost reductions, are estimated to be reduced by $5.6 million per annum due to New Servicer operations and funded by the Funder (through New Servicer).

• Enhanced Servicing Operation
  The Company plans to establish a servicing operation that will be 100% dedicated to recovering claim rights. MSP Recovery would continue to own 100% of all IP rights that it has developed, which it will license to the New Servicer, and a newly appointed and independent CEO will manage the New Servicer. The Company’s objective is to create a servicing operation that is scalable, adequately funded, and capable of serving providers, health plans, and the state and federal government.
  
  The New Servicer would have an independent board composed of two world-class experienced executives with experience in legal, data, and healthcare, and an existing board member from MSP Recovery. Lender Hazel would approve the independent board members of the New Servicer. This partnership is expected to enhance the Company’s IT/Data know-how and recovery processes.

• Debt Restructuring
  

In exchange for a 43% equity interest in the Company (inclusive of shares currently held and those shares acquired through warrant exercises) Virage has agreed to waive all claims and release all liens against the Company relating to the VRM Full Return (approximately $1.2 billion as of March 31, 2025), and the Parties agree that the VRM Full Return will be paid only from: (i) a junior lien against Subrogation Holdings, LLC proceeds, (ii) claims currently owned by Virage, (iii) liens over two tranches of claims currently owned by Hazel (which Hazel shall release as part of the reorganization transaction) and (iv) a non-recourse second lien up to $100 million over 50% of the proceeds from the New Servicer and associated SPVs, to the extent that the VRM Full Return has not been repaid.

In addition, the MSP Principals have agreed to convert 100% of the Company’s debt obligation to them, totaling approximately $144 million, into shares of the Company’s Class A Common Stock, the full and final amount of the debt-to-equity conversion is subject to tax analysis and approval of the MSP Principals and the Company’s Board of Directors.

Hazel’s existing loans to Subrogation Holdings and the amount of Company’s guaranty (currently approximately $100 million) remain unchanged except that such lien shall now exclude the Company’s intellectual property. Hazel agreed, subject to obtaining third-party consents, to extend the maturity date on all outstanding obligations to November 30, 2026. To secure the repayment of the existing Hazel loans to the extent such loans have not been repaid in full, the Company shall, for a principal amount of up to $235 million with an interest rate of SOFR plus 10% per annum: (i) pledge to Hazel 50.1% of the New Servicer and associated SPV equity interests; and (ii) grant a lien over 50% of the proceeds from New Servicer and associated SPVs, once the New Servicer funding has been repaid. In addition, to the extent the VRM Full Return has not been repaid, Virage has second lien of up to $100 million over 50% of the proceeds from New Servicer and associated SPVs.

• Significant Reduction in Guaranteed Debt of MSP Recovery
  Upon consummation of the proposed transactions, the Company will have reduced $1.2 billion of corporate guarantees of MSP Recovery and reduced its liability to principals John H. Ruiz and Frank C. Quesada by approximately $144 million, assuming full conversion of the debt.

• Extension of Yorkville Obligation
  

In addition, Yorkville has agreed to extend the deadline for the Company’s debt obligations to November 30, 2026, in alignment with the Company’s corporate restructuring plan. Under the terms of the Standby Equity Purchase Agreement dated November 14, 2023, as amended, Yorkville waived the Volume Threshold and Maximum Advance Amount limitations, thus increasing the potential for the Company to raise capital by selling shares of its stock to Yorkville over time.

These strategic actions collectively reduce legacy liabilities and provide a sustainable platform for MSP Recovery’s next phase of growth.

“These transactions represent a critical turning point for MSP Recovery,” said John H. Ruiz, Founder and CEO of MSP Recovery. “By aligning with strategic partners and securing operational funding, we believe we have established a foundation that not only addresses past challenges but positions us for long-term growth. The Company appreciates the continued partnership and collaborative approach of its various partners.”

About MSP Recovery

Founded in 2014, MSP Recovery has become a Medicare, Medicaid, commercial, and secondary payer reimbursement recovery leader, disrupting the antiquated healthcare reimbursement system with data-driven solutions to secure recoveries from responsible parties. MSP Recovery innovates technologies and provides comprehensive solutions for multiple industries including healthcare and legal. For more information, visit: msprecovery.com.

Forward Looking Statements

This release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “plan,” and “will” or, in each case, their negative, or other variations or comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance or results and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by MSP Recovery herein speaks only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict or identify all such events or how they may affect it. MSP Recovery has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to, the Company’s ability to capitalize on its assignment agreements and recover monies that were paid by the assignors; the inability of MSP Recovery to obtain financing and generate revenues sufficient to cover the cost of operations; the inherent uncertainty surrounding settlement negotiations and/or litigation, including with respect to both the amount and timing of any such results; the validity of the assignments of claims to MSP Recovery; the ability to successfully expand the scope of the Company’s claims or obtain new data and claims from the Company’s existing assignor base or otherwise; the Company’s ability to innovate and develop new solutions, and whether those solutions will be adopted by the Company’s existing and potential assignors; negative publicity concerning healthcare data analytics and payment accuracy; and those additional factors included in MSP Recovery’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by it with the Securities and Exchange Commission. These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.

For Media Inquiries:
media@msprecovery.com

For Investor Inquiries:
investors@msprecovery.com

FAQ

What is the total debt reduction for MSPR in the 2025 restructuring deal?

The restructuring reduces over $1.2 billion in corporate guaranteed debt and converts approximately $144 million of principals' debt to equity.

How much funding will MSPR receive through the 2025 Hazel Partners agreement?

MSPR will receive up to $9.75 million in bridge funding ($6.5M available through July 2025) and up to $25 million in working capital for the New Servicer entity.

What equity stake will Virage Capital receive in MSPR after restructuring?

Virage will receive a 43% equity stake in MSPR in exchange for waiving claims and releasing liens against the company.

When will MSPR's restructuring transaction be completed?

The transaction is expected to close by April 30, 2025, subject to definitive agreements and regulatory approvals.

How much annual cost reduction does MSPR expect from the New Servicer operations?

MSPR expects annual cost reductions of $5.6 million through the New Servicer operations.