Surf Air Mobility Announces Closing of $35.2 Million Mandatory Convertible Security with GEM Global Yield LLC

Rhea-AI Summary

Surf Air Mobility (NYSE: SRFM) has closed a $35.2 million mandatory convertible security deal with GEM Global Yield This strategic move aims to reduce near-term stock overhang by canceling a significant portion of GEM's freely tradable shares. The agreement includes a 10% daily volume sales restriction on GEM and related entities, and grants Surf Air the flexibility to redeem the security at 115% of the outstanding par amount.

The convertible security has a maximum conversion of 8 million shares of Surf Air's common stock. Additionally, GEM has agreed to restore the full $400 million capacity of Surf Air's share subscription facility, allowing for both advance and regular way drawdowns. This deal enhances Surf Air's financial flexibility while addressing potential dilution concerns.

Positive

• Secured $35.2 million in funding through a mandatory convertible security
• Reduced near-term stock overhang by canceling a portion of GEM's freely tradable shares
• Implemented a 10% daily volume sales restriction on GEM and related entities
• Gained flexibility to redeem the security at 115% of par value, potentially avoiding dilution
• Restored full $400 million capacity of share subscription facility with GEM

Negative

• Potential dilution of up to 8 million shares if the convertible security is fully converted

Insights

Financial Analyst

Surf Air Mobility's $35.2 million mandatory convertible security deal with GEM Global Yield is a strategic financial maneuver with both positive and negative implications. On the upside, it provides immediate capital infusion and restores the $400 million share subscription facility capacity, enhancing financial flexibility. The 10% daily volume sales restriction on GEM's shares and the cancellation of previously issued shares could help stabilize the stock price by reducing potential selling pressure.

However, the conversion feature poses a dilution risk for existing shareholders, with up to 8 million new shares potentially entering the market. The 115% redemption clause, while offering control over dilution, comes at a premium cost. Investors should closely monitor how management utilizes this capital and whether the benefits outweigh the potential dilution and redemption costs.

Market Research Analyst

This deal reflects Surf Air Mobility's attempt to balance immediate funding needs with long-term shareholder value. The market's reaction will likely hinge on the company's ability to effectively deploy the capital and demonstrate progress in its regional air mobility platform. The restoration of the $400 million share subscription facility is particularly noteworthy, as it provides a substantial financial runway for future growth initiatives.

However, investors should be cautious about potential market perception issues. The need for such a structured deal might be interpreted as a sign of financial strain or difficulty in attracting traditional equity investors. The success of this strategy will ultimately depend on Surf Air's ability to leverage this capital to achieve significant operational milestones and improve its market position in the competitive air mobility sector.

Legal Expert

The structure of this deal showcases a careful balance of interests between Surf Air Mobility and GEM Global Yield. The cancellation of previously issued shares and implementation of sales restrictions demonstrate a commitment to mitigating potential negative market impacts. The redemption rights at 115% of par value provide Surf Air with a mechanism to manage dilution, albeit at a premium.

From a governance perspective, the involvement of the board of directors in this decision is crucial, indicating proper oversight. However, shareholders should scrutinize the terms, particularly the potential for up to 8 million new shares, which could significantly alter the company's capital structure. The restored $400 million share subscription facility also warrants attention, as its utilization could have substantial implications for future ownership dynamics and corporate control.

Parties Agree to Cancel Previously Issued Shares, Restrict Sales, Provide for Redemption Rights, and Restore Capacity Under $400 Million Share Subscription Facility

LOS ANGELES--(BUSINESS WIRE)-- Surf Air Mobility Inc. (NYSE: SRFM) (the “Company”), a leading regional air mobility platform, today announced that it closed the previously announced issuance and sale to GEM of a mandatory convertible security (the “Security”). The Security has a par amount of $35.2 million and is convertible into a maximum of 8,000,000 shares of the Company’s common stock.

The Company, in consultation with its board of directors, agreed to the sale of the Security to GEM with objectives of:

1. Reducing near-term overhang: Cancels a significant portion of GEM's currently issued and freely tradable shares in the Company.
2. Imposing a volume restriction: On any trading day, limits sales of shares beneficially owned by GEM and certain related entities to 10% of the daily volume of the Company’s common stock on the immediately preceding trading day.
3. Flexibility to Redeem: Gives the Company the ability to redeem all or part of the Security in cash at 115% of the then outstanding par amount at any time, thereby potentially avoiding dilution.

GEM has also agreed to refresh the Company’s ability to take both advance drawdowns (up to $100 million) and regular way drawdowns (up to $300 million) back to full capacity, thereby allowing the Company to access up to $400 million as originally contemplated under its share subscription facility with GEM.

About Surf Air Mobility

Surf Air Mobility is a Los Angeles-based regional air mobility platform expanding the category of regional air travel to reinvent flying through the power of electrification. In an effort to substantially reduce the cost and environmental impact of flying and as the operator of the largest commuter airline in the US, Surf Air Mobility intends to develop powertrain technology with its commercial partners to electrify existing fleets and bring electrified aircraft to market at scale. The management team has deep experience and expertise across aviation, electrification, and consumer technology.

Forward-Looking Statements

This Press Release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers of this release should be aware of the speculative nature of forward-looking statements. These statements are based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company and reflect the Company’s current views concerning future events. As such, they are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. These and other risks are discussed in detail in the periodic reports that the Company files with the SEC, and investors are urged to review those periodic reports and the Company’s other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov, before making an investment decision. The Company assumes no obligation to update its forward-looking statements except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240809879544/en/

Media Contacts

Press: press@surfair.com

Investors: investors@surfair.com

Source: Surf Air Mobility Inc.

FAQ

What is the value of the mandatory convertible security issued by Surf Air Mobility (SRFM) to GEM Global Yield ?

Surf Air Mobility (SRFM) issued a mandatory convertible security to GEM Global Yield with a par amount of $35.2 million.

How many shares of Surf Air Mobility (SRFM) can the convertible security be converted into?

The convertible security issued by Surf Air Mobility (SRFM) can be converted into a maximum of 8,000,000 shares of the company's common stock.

What sales restriction has been imposed on GEM Global Yield for Surf Air Mobility (SRFM) shares?

GEM Global Yield and certain related entities are to selling no more than 10% of the daily trading volume of Surf Air Mobility (SRFM) common stock on any given trading day.

What redemption rights does Surf Air Mobility (SRFM) have for the convertible security issued to GEM?

Surf Air Mobility (SRFM) has the right to redeem all or part of the convertible security in cash at 115% of the outstanding par amount at any time.

How has the share subscription facility between Surf Air Mobility (SRFM) and GEM been affected by this deal?

GEM has agreed to restore Surf Air Mobility's (SRFM) ability to access the full $400 million capacity of the share subscription facility, including both advance and regular way drawdowns.