What are the potential impacts on SPX’s credit metrics and existing debt covenants after the capital raise?

Credit‑metric outlook

The $500 million equity raise (plus a possible $75 million over‑allotment) will expand SPX’s balance‑sheet capital by roughly 10‑12 % of its current market‑cap, adding a sizable cash buffer that can be used to pay down existing term‑loan facilities or to fund working‑capital needs. By increasing the equity tier, the firm’s lever‑age ratio (net debt / EBITDA) and debt‑to‑equity will fall, tightening the metrics that most rating agencies and lenders monitor. Assuming the proceeds are applied to retire a portion of the $1.2 billion of senior debt outstanding, the net‑debt/EBITDA multiple could drop from the high‑‑30s % range to the low‑‑20s % range, comfortably clearing the typical 3.0‑x covenant ceiling that many of SPX’s revolving credit facilities impose. Likewise, the interest‑coverage ratio will improve as the lower leverage reduces the required cash‑flow coverage for the same interest expense, giving the company a wider cushion against covenant breaches.

Covenant implications and trading take‑aways

Most of SPX’s existing debt agreements contain “maintenance‑type” covenants that trigger a default if leverage or coverage ratios exceed a pre‑set threshold for a specified number of consecutive quarters. The infusion of cash will likely bring the company back into compliance with those thresholds, removing the immediate risk of a technical default and the associated “covenant‑waiver” fees that can be costly. However, the market will also price‑in the dilution from issuing new shares—potentially pressuring the stock lower in the short term—especially if the offering price is below the recent 20‑day high. From a technical standpoint, the equity‑raise could act as a support level around the $45‑$48 range (the current trading band), as the cash inflow stabilises the balance sheet and may encourage institutional holders to stay long. Conversely, if the deal stalls or the over‑allotment is not exercised, the upside is limited and the risk of covenant‑watch‑list re‑entry remains.

Actionable insight

• Long‑biased on the equity side: the capital raise improves credit health and should clear any covenant‑watch concerns, making the stock a more attractive carry‑trade for balance‑sheet‑focused investors. Look for a buy‑on‑dip if the offering price triggers a 3‑5 % pull‑back; the improved leverage profile offers a structural upside once the market digests the dilution.
• Short‑biased on the near‑term volatility: monitor the pricing of the offering and the closing‑date of the underwriters’ 30‑day option. A lower‑than‑expected price could accelerate a short‑term sell‑off, breaching technical support at the 20‑day low. Keep a tight stop just below the $44 level to protect against a volatility‑driven breakout.