Sound Point Meridian Announces $100 Million “Net Asset Value” Credit Facility

Rhea-AI Summary

Sound Point Meridian Capital (NYSE: SPMC) has secured a $100 million revolving credit facility from Canadian Imperial Bank of Commerce (CIBC), with the potential to increase to $125 million. This facility is backed by a first-priority lien on nearly all of the company's assets, including eligible portfolio investments. The funds will be used for investment activities, working capital, and general corporate purposes.

Borrowings will bear interest at either term SOFR plus a 3.75% margin or an alternate base rate plus a 2.75% margin. Initially, borrowing must be at the term SOFR rate, but can be converted to the alternate rate under certain conditions. The credit facility matures on July 8, 2026, with an option to extend by up to 364 days.

Positive

• Sound Point Meridian Capital has secured a $100 million revolving credit facility with an option to increase to $125 million.
• The credit facility is secured by a first-priority lien on nearly all of the company’s assets.
• Funds can be used for investment activities, working capital, and general corporate purposes.

Negative

• The borrowings will bear a significant interest margin of 3.75% for term SOFR and 2.75% for the alternate base rate.
• The facility is secured by nearly all the company’s assets, which poses a risk if the company encounters financial difficulties.

Financial Analyst

Sound Point Meridian Capital, Inc.'s announcement of a $100 million revolving credit facility is a noteworthy development. Utilizing a net asset value (NAV) credit facility provides the company flexibility in managing its liquidity. NAV credit facilities are typically used by investment companies to leverage their assets. This can enhance returns but also introduces higher risk.

The interest rates tied to this facility are based on SOFR plus 3.75% or alternate base rate plus 2.75%. SOFR, or the Secured Overnight Financing Rate, is a benchmark interest rate for dollar-denominated derivatives and loans, which is considered a reliable metric for daily borrowing costs. Given current interest rate trends, these rates are in line with market expectations.

An important detail is that the facility can be extended for an additional 364 days. This provides the company with potential for prolonged liquidity support. However, the use of such borrowed funds for working capital or general purposes instead of specific high-return investments may raise questions about the company's short-term cash flow needs.

From a retail investor's perspective, this credit facility should be seen as a double-edged sword. It offers liquidity and the potential for increased investment returns but also increases leverage and associated financial risk. Investors should monitor how effectively Sound Point deploys this capital and whether it translates into tangible returns.

Market Research Analyst

Sound Point Meridian's new $100 million credit facility aligns with current trends in the investment management industry. Many investment firms are leveraging credit facilities to maximize returns on their portfolios. The ability to increase this facility to $125 million gives Sound Point additional headroom to capitalize on attractive investment opportunities.

However, the details of how these funds will be deployed remain crucial. If the borrowed funds are effectively used to seize high-yield investment opportunities, the firm could see substantial growth. On the flip side, if the funds are primarily used to shore up working capital, it may indicate underlying cash flow pressures.

The secured nature of this facility, with a first-priority interest in the company's assets, provides some assurance to creditors, but it also means that investors need to be aware of the potential risks if the company's investments do not perform as expected. Overall, the efficacy of this credit line will hinge on Sound Point's ability to generate returns that exceed the cost of borrowing.

Provides Liquidity for Investments, Working Capital and General Corporate Purposes

NEW YORK--(BUSINESS WIRE)-- Sound Point Meridian Capital, Inc. (NYSE: SPMC), a closed-end management investment company that has registered as an investment company under the Investment Company Act of 1940, as amended (the “Company”), today announced that it has entered into a $100 million “net asset value” revolving credit facility with Canadian Imperial Bank of Commerce (“CIBC”), as a lender and administrative agent, which may be increased up to $125 million pursuant to the terms thereof (the “CIBC Credit Facility”). The CIBC Credit Facility is secured by a first-priority perfected security interest in substantially all assets of the Company, including, without limitation, all eligible portfolio investments of the Company, subject to certain exceptions.

Borrowings under the CIBC Credit Facility may be utilized for the Company’s investment activities, working capital and general corporate purposes. Borrowings under the CIBC Credit Facility will bear interest at either (i) term SOFR plus a margin of 3.75% per annum, or (ii) the alternate base rate plus a margin of 2.75% per annum. The Company may only borrow at term SOFR rate at the time of drawdown, but the borrowings may be converted to bear interest at the alternate base rate under certain conditions.

The CIBC Credit Facility will mature on July 8, 2026, which may be extended for an additional period of up to 364 days pursuant to the terms thereof.

About the Company

The Company is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate high current income, with a secondary objective to generate capital appreciation, by investing primarily in third-party collateralized loan obligation (“CLO”) equity and mezzanine tranches of predominately U.S. dollar-denominated CLOs backed by corporate leveraged loans issued primarily to U.S. obligors. The Company is externally managed and advised by Sound Point Meridian Management Company, LLC, a Delaware limited liability company. The Company’s public filings are available free of charge by writing to the Company at 375 Park Avenue, 34th Floor, New York, New York 10152, Attention: Investor Relations, or by telephone at (833) 217-6665.

FORWARD-LOOKING STATEMENTS

This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in the prospectus and the Company’s other filings with the Securities Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

View source version on businesswire.com: https://www.businesswire.com/news/home/20240709388936/en/

Investor Relations:

Garrett Edson – ICR; Julie Smith – Sound Point Capital

(833) 217-6665

ir@soundpointmeridiancap.com

www.soundpointmeridiancap.com

Source: Sound Point Meridian Capital, Inc.

FAQ

What is the amount of the credit facility Sound Point Meridian Capital secured?

Sound Point Meridian Capital secured a $100 million credit facility, which can be increased to $125 million.

What is the interest rate for the Sound Point Meridian Capital credit facility?

The interest rate is either term SOFR plus a 3.75% margin or an alternate base rate plus a 2.75% margin.

What is the maturity date for the Sound Point Meridian Capital credit facility?

The credit facility matures on July 8, 2026, with an option to extend for an additional period of up to 364 days.

What will the funds from the Sound Point Meridian Capital credit facility be used for?

The funds will be used for investment activities, working capital, and general corporate purposes.

Which bank is providing the credit facility to Sound Point Meridian Capital?

The credit facility is provided by Canadian Imperial Bank of Commerce (CIBC).