8-K: Surf Air Mobility Closes $35.2 Million Convertible Security Deal with GEM, Restores Full Access to $400 Million Share Subscription Facility

Surf Air Mobility has finalized a $35.2 million mandatory convertible security agreement with GEM Global Yield LLC, which includes the cancellation of previously issued shares and the restoration of a $400 million share subscription facility.

Summary

• Surf Air Mobility closed a private placement with GEM Global Yield LLC for a mandatory convertible security with a par amount of $35.2 million.
• This security is convertible into a maximum of 8,000,000 shares of Surf Air Mobility's common stock.
• As part of the agreement, GEM returned 6,300,000 common shares to the company that it had previously purchased.
• The deal also restores Surf Air Mobility's access to a $400 million share subscription facility with GEM, including $100 million in advance drawdowns and $300 million in regular drawdowns.
• The mandatory convertible security matures on August 7, 2029, unless converted or redeemed earlier.
• A registration statement for the resale of up to 325,000,000 common shares by GEM, including those from the convertible security, has been declared effective.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting a significant financing deal and restored access to a large credit facility. The restrictions on share sales and the option to redeem the security are also positive. However, the potential for dilution and reliance on a single investor temper the overall sentiment.

Positives

• The deal reduces near-term share overhang by cancelling a significant portion of GEM's previously issued and freely tradable shares.
• The agreement imposes a volume restriction on GEM's share sales, limiting them to 10% of the daily trading volume.
• Surf Air Mobility has the flexibility to redeem the security in cash at 115% of the outstanding par amount, potentially avoiding dilution.
• The restoration of the $400 million share subscription facility provides the company with significant financial flexibility.

Risks

• The mandatory convertible security could lead to dilution if converted into common stock.
• The company's ability to redeem the security depends on its financial capacity.
• The company is reliant on GEM for a significant portion of its financing.

Future Outlook

The company intends to use the funds and the restored share subscription facility to support its growth and development, particularly in the area of electric powertrain technology. The company has the option to redeem the security at 115% of the outstanding par amount, potentially avoiding dilution.

Management Comments

• The company, in consultation with its board of directors, agreed to the sale of the Security to GEM with objectives of reducing near-term overhang, imposing a volume restriction, and providing flexibility to redeem.
• The company aims to substantially reduce the cost and environmental impact of flying through electrification.

Industry Context

This announcement is relevant to the regional air mobility sector, where companies are exploring new financing options and technologies like electrification to improve efficiency and reduce environmental impact. The deal provides Surf Air Mobility with capital and flexibility to pursue its electrification goals.

Comparison to Industry Standards

• The use of convertible securities is a common financing method for growth companies in the aviation and technology sectors.
• The $400 million share subscription facility is a significant commitment from GEM, indicating confidence in Surf Air Mobility's potential.
• The volume restrictions on GEM's share sales are designed to mitigate potential negative impacts on the company's stock price, which is a common concern with large investors.
• Comparable companies in the electric aviation space, such as Joby Aviation and Archer Aviation, have also raised significant capital through various means, including private placements and strategic partnerships.

Related Party Transactions

• The transaction with GEM Global Yield LLC is a related party transaction.

Stakeholder Impact

• Shareholders may experience dilution if the convertible security is converted into common stock.
• Employees may benefit from the company's increased financial stability and growth prospects.
• Customers may benefit from the company's development of more efficient and environmentally friendly air travel options.
• Suppliers may benefit from increased business with the company.
• Creditors may view the company as a more stable borrower due to the increased financial flexibility.

Next Steps

• Surf Air Mobility will likely use the funds from the convertible security and the share subscription facility to further develop its electric powertrain technology.
• The company will need to manage the potential dilution from the convertible security.
• The company will need to monitor the trading volume of its stock to ensure GEM's sales do not negatively impact the share price.

Key Dates

Keywords

convertible security, share subscription facility, private placement, GEM Global Yield LLC, dilution, redemption, share overhang, volume restriction, capital raise, financing