SLND

Business Context and Reporting Period

Company: Southland Holdings, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: September 30, 2024
Event: Entry into a Material Definitive Agreement (Credit Agreement) and termination of a prior revolving credit facility.

Key Financial Metrics and Transaction Details

This filing details a new debt facility rather than reporting period-end operating results (revenue, profit, or cash flow). Key financial terms of the new agreement include:

• Total Facility Size: $160.0 million secured term loan facility.
• Initial Draw (Term Loan): $140.0 million.
• Delayed Draw Commitment: $20.0 million (available for future draws in minimum increments of $2.5 million).
• Interest Rate: 7.25% per annum plus the higher of (i) 90-day SOFR + 0.15% or (ii) 3%.
• Commitment Fee: 3.75% per annum on the undrawn portion of the Delayed Draw.
• Maturity Date: September 30, 2028.
• Collateral: First lien on all assets of the Company and subsidiaries.

Material Changes vs. Prior Period

The Company executed a significant refinancing transaction on September 30, 2024:

• Debt Refinancing: Approximately $96.0 million of the new Term Loan proceeds was used to refinance existing indebtedness.
• Termination of Prior Facility: The Company terminated its revolving credit facility with Frost Bank. Proceeds from the new loan were used to pay in full all outstanding borrowings on the Revolver, totaling $74.5 million.
• Use of Proceeds:
  • $96.0 million: Refinance existing indebtedness.
  • $37.8 million: General corporate purposes.
  • $6.2 million: Transaction costs and expenses.

Guidance, Covenants, and Risks

Amortization Schedule: Quarterly principal payments commence December 31, 2024.

• Year 1: 5.0% of principal (1.25% per quarter).
• Year 2: 10.0% of principal (2.50% per quarter).
• Years 3 & 4: 15.0% of principal (3.75% per quarter).
• Remaining balance due at maturity.

Financial Covenants:

• Liquidity Requirement: Must maintain Liquidity of at least $20 million.
• EBITDA Covenants: Trailing twelve-month (TTM) EBITDA covenants apply only when Liquidity falls below $30 million. These covenants cease to apply once Liquidity exceeds $30 million for at least 30 consecutive days.
• Advance Rates: Outstanding principal cannot exceed specified advance rates against eligible collateral.

Prepayment Penalties:

• Year 1: 3% or make-whole premium (whichever is higher).
• Year 2: 2% fee.
• Year 3: 1% fee.
• Year 4: No fees.

Risks: An event of default allows the Lender to accelerate amounts due. The filing does not provide specific guidance on future revenue or earnings.

Investor Verification Checklist

• Verify the exact amount of "existing indebtedness" refinanced ($96.0 million) against prior 10-K or 10-Q filings to confirm the net debt reduction.
• Review the definition of "Liquidity" in the attached Credit Agreement (Exhibit 10.1) to understand the threshold for triggering EBITDA covenants.
• Confirm the current SOFR rate to calculate the effective all-in interest cost (7.25% + SOFR spread).
• Assess the impact of the mandatory quarterly amortization on future cash flow requirements starting Q4 2024.
• Check for any "permitted liens" or exceptions in the collateral agreement that might limit the security interest.