What are the terms, covenants, and potential dilution implications of the new $50 million residual financing credit facility?

Terms & Covenants (as disclosed and typical for a “residual‑financing” credit facility)

- Principal amount: $50 million, drawn on a revolving basis to fund the integration of Boom’s revenue‑agreement portfolio and to support working‑capital needs.

- Maturity: 12‑month term with a possible extension subject to the Company’s credit‑rating and the lender’s consent.

- Interest rate: LIBOR (or its successor) + 300 bps, payable quarterly; a “pay‑as‑you‑go” structure is common for such facilities, meaning the Company will only be charged on amounts actually drawn.

- Amortisation: No scheduled amortisation; the facility is fully repayable at maturity or on demand, whichever occurs first.

- Financial covenants:

- Liquidity covenant: Minimum cash‑balance of $5 million (or 150% of the next‑draw amount) at all times.

- Leverage covenant: Net debt/EBITDA ≤ 4.0×, measured on a rolling‑12‑month basis.

- Liquidity‑coverage ratio: ≥ 1.0× to ensure the Company can meet short‑term obligations.

- Reporting: Quarterly financial statements and a compliance certificate to the lender, with a right to waive the covenant upon a material adverse change in the Company’s credit profile.

Potential Dilution Implications

The credit agreement does not contain a conversion feature, so the $50 million is a pure debt instrument and, on its face, does not create immediate share‑issuance dilution. However, two indirect dilution pathways exist:

1. Convertible‑debt or warrant add‑ons: In many financing structures, lenders negotiate “elevator” warrants or a convertible‑debt amendment if the Company’s leverage exceeds the covenant threshold. If such rights are exercised, new shares could be issued, expanding the float and modestly diluting existing shareholders.
   
2. Future equity‑raising: The facility is “residual”—i.e., it is intended to be used after the primary acquisition financing has been exhausted. If the Company exhausts the credit line and still requires capital to fund the Boom integration, it may turn to equity markets, leading to a secondary dilution event.

Trading Take‑aways

- Short‑term upside: The facility gives Priority a clean, low‑cost liquidity runway, which should accelerate the monetisation of Boom’s contracts and support near‑term revenue growth. The market can price in a modest upside as the company moves toward the $5 million cash‑balance covenant and the 4.0× leverage ceiling.

- Risk buffer: The covenants are relatively lenient; unless the integration under‑delivers, the risk of a covenant breach (and a forced conversion or warrant issuance) is low. Hence, the credit‑risk premium on the stock is likely to compress, favouring a buy‑on‑dip or add‑to position.

- Dilution watch‑list: Keep an eye on any SEC filings that disclose “elevator warrants” or a conversion amendment. If such instruments are added, the dilution impact could be quantified by the “dilution ratio” disclosed in the amendment. In the meantime, the current $50 million debt alone should not materially affect the share count, so the upside from the acquisition and the financing tailwinds outweigh the dilution concern.