Surf Air Mobility Enters into Binding Terms for a $35.2 Million Mandatory Convertible Debenture with GEM Global Yield LLC
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Insights
The binding term sheet between Surf Air Mobility Inc. and GEM is a strategic financial maneuver aimed at optimizing the company's capital structure. The cancellation of previously issued shares is set to reduce the 'overhang' on SRFM's stock, which refers to the downward pressure on a company's share price due to the potential for large volumes of shares to hit the market. By eliminating this overhang, the company could potentially see an upward movement in its share price, as the market perceives a reduced risk of share dilution.
Furthermore, the volume restriction imposed on GEM's sales of shares related to the debenture aligns with the company's interest to minimize the impact of such sales on the stock's liquidity and price. This measure could prevent significant market disruption and protect existing shareholders’ interests. The redemption flexibility at a premium also provides SRFM with a mechanism to control dilution and manage its debt levels more proactively.
Lastly, the renewal of the company's ability to access funds through drawdowns enhances its financial agility. This access to capital can be critical for funding ongoing operations, investing in new technologies, or expanding business reach. However, the potential for an additional $400 million in funding could also imply future dilution if equity is used as a financing tool. Investors should monitor the terms of these drawdowns and the company's use of proceeds to assess the long-term implications for shareholder value.
The agreement between Surf Air Mobility and GEM highlights the importance of strategic financing options for companies in high-growth sectors such as air mobility and electrification. The decision to restructure the financial agreements reflects a proactive approach to managing investor relations and stock market perception. The air mobility industry is capital-intensive and companies like SRFM are often in need of substantial funds to finance research and development, infrastructure and go-to-market strategies.
The mandatory convertible debenture, while still subject to further negotiation, indicates a level of confidence from GEM in SRFM's future prospects. Investors and analysts should consider the broader industry trends, including the push towards sustainable transportation and the technological advancements in electric aircraft, which could drive demand for Surf Air Mobility's offerings. The company's ability to secure and renegotiate funding arrangements suggests a competitive position in the market and potential for growth. However, the final terms of the transaction will be crucial in determining the actual impact on the company's financial health and market potential.
The term sheet's legal implications are significant, as it outlines the preliminary agreement between Surf Air Mobility Inc. and GEM, but it is not the final binding contract. The definitive agreements that will follow are crucial, as they will solidify the terms of the debenture, the share cancellation and the restrictions on share sales. Stakeholders should be aware that until these definitive agreements are executed, there is still room for negotiation, which could alter the expected outcomes.
From a legal standpoint, the term sheet signifies intent and a framework for the forthcoming negotiations. The aspect of the term sheet that allows for redemption at a premium could be seen as a protective legal strategy for the company, ensuring that they have the option to limit dilution and maintain greater control over their capital structure. This move could be interpreted as a sign of prudent legal and financial planning by SRFM's management and board of directors.
Parties Agree to Cancel Previously Issued Shares, Restrict Sales and Redemption Rights, and Increase Capacity Under
The Company, in consultation with its Board of Directors, elected to amend the existing agreements with GEM with objectives of:
- Reducing near-term overhang: The term sheet contemplates cancellation of substantially all of GEM's currently issued and freely tradable shares in SRFM.
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Imposing a volume restriction: The term sheet contemplates limiting sales of shares related to the debenture to
10% of the Company’s prior 30 days’ average trading volume per day. -
Flexibility to Redeem: The term sheet contemplates giving the company the ability to redeem all or part of the mandatory convertible debenture at
115% of par value at any time, thereby avoiding dilution.
GEM has also agreed to refresh the Company’s ability to take both advance drawdowns (up to
The term sheet contains an outline of the terms of the expected transaction, but all terms described in the term sheet are subject to further negotiation between the parties, and the final terms of the transaction will be set forth in the definitive agreements executed by the Company and GEM.
About Surf Air Mobility
Surf Air Mobility is a
Forward-Looking Statements
This Press Release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, including statements regarding the Company and GEM negotiating and executing one or more definitive agreements to fully implement the potential issuance of the mandatory convertible debenture, and the expected terms and objectives of such transaction. 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. Such risks and uncertainties include, among many others: the risk that the Company may not successfully negotiate the definitive agreements; the risk that the Company may not consummate the issuance of the debenture; the risk that any projections, including earnings, revenues, expenses, synergies, margins or any other financial items that form the basis for management’s plans and assumptions will not be realized; the risks associated with the Company’s obligations to comply with applicable laws, government regulations and rules and standards of the New York Stock Exchange; and general economic conditions. 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.
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Surf Air Mobility: press@surfair.com
Source: Surf Air Mobility Inc.
FAQ
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