MSP Recovery Secures $55M Lifeline at a Heavy Cost to Shareholders
Financing deal carries risk of 46% equity dilution, coupled with a 1-for-7 reverse stock split to maintain Nasdaq listing.
MSP Recovery Inc. has announced a non-binding term sheet for a secured loan facility of up to $55 million, a move aimed at providing critical working capital but one that comes with substantial risks for its current shareholders, including the potential for equity dilution of up to 46%.
The Miami-based healthcare reimbursement recovery firm stated the agreement, arranged with an undisclosed investor, is structured as a first lien secured delayed draw term loan. The financing is split into two parts: a $10 million Tranche A, with an initial $5 million expected at closing, and a subsequent $45 million Tranche B. The facility has a 36-month maturity, with options for two one-year extensions.
However, the cost of this capital injection is steep. In exchange for the funding, MSP Recovery will issue warrants to the lender to purchase Class A common stock at an exercise price of just $0.01 per share. If the full $55 million is drawn, these warrants could convert into approximately 46% of the company’s fully diluted equity, severely diminishing the ownership stake of existing investors.
The financing announcement coincides with the company’s separate plan to execute a 1-for-7 reverse stock split, effective September 1, 2025. This measure is designed to raise the company's share price to regain compliance with Nasdaq's $1.00 minimum bid price requirement and avoid delisting.
The terms of the loan underscore the company’s precarious financial position. The agreement includes provisions for the potential appointment of a Chief Restructuring Officer and a voting trust arrangement for some existing shareholders, granting the new lender significant oversight and control over the company's operations.
CEO John H. Ruiz framed the deal as a strategic move, stating, “The transactions contemplated in the term sheet agreement would pave the way for a capital infusion, aiming to create strategic alignment with partners who share our long-term vision.” Despite the optimistic outlook from management, the combination of highly dilutive financing and a reverse stock split paints a picture of a company navigating significant financial challenges.