Business Context and Reporting Period
Company: Southland Holdings, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 13, 2026
Context: The Company entered into a Financial Assistance Agreement and a Second Amendment to its Credit Agreement with its sureties to formalize ongoing financing support for bonded construction projects. These agreements address the Company's liquidity needs and restructure debt obligations following the assignment of $110.0 million of loans to sureties in March 2026.
Key Financial Metrics and Obligations
- Total Surety Financing (as of June 30, 2026): Approximately $209.8 million.
- Bonding Surety Financing: $58.97 million (accruing interest at 4% per annum).
- Non-Bonding Financing: $150.86 million.
- Term Loan Balance (as of June 30, 2026): $96.4 million.
- Washington State Convention Center Settlement Obligation: Approximately $89.1 million (repayment terms currently under negotiation).
- Preferred Shares Issuance: Expected issuance of $150.86 million in senior non-voting preferred shares to convert Non-Bonding Financing.
Material Changes and Restructuring
Financial Assistance Agreement
Effective retroactively to October 1, 2025, this agreement governs future financing assistance. Key changes include:
- Debt-to-Equity Conversion: Non-Bonding Financing is being converted into Preferred Shares with a stated value of $1,000 per share. The initial issuance equals the lesser of the financing amount ($150.86 million) or 50% of the "Expected Loss" for each surety panel.
- Forgiveness Provisions: Remaining unsecured Non-Bonding Financing may be forgiven if projects achieve substantial completion within 20% of the Expected Loss, subject to no default.
- Security Interest: Indemnitors granted a second lien security interest in collateral to secure Bonding Surety Financing and a portion of Non-Bonding Financing.
- Cash Management: Implementation of deposit account control agreements allowing lead sureties to sweep accounts upon default.
Second Amendment to Credit Agreement
Effective retroactively to March 17, 2026, this amendment provides relief during the "Relief Period" (until a Reinstatement Date):
- Interest Rate Reduction: Fixed at 4.00% per annum (down from 7.25% plus SOFR/spread).
- Payment Terms: Interest is capitalized (paid-in-kind); scheduled quarterly amortization payments are suspended.
- Covenant Relief: Removal of borrowing base, liquidity (including the $20.0 million minimum liquidity covenant), and certain EBITDA testing requirements.
- Prepayment: Early termination premiums are suspended; mandatory prepayment rules for asset dispositions are revised.
Outlook, Risks, and Contingencies
- Preferred Share Redemption: The Company may redeem Preferred Shares at par value after issuance. Mandatory redemption may be triggered by restructuring or change-of-control events.
- Debt Forgiveness Risk: Forgiveness of unsecured indebtedness is contingent on project completion metrics and the absence of "bad acts" or defaults by indemnitors. Revocation of forgiveness is possible if conditions are not met.
- Unresolved Settlement: Repayment terms for the $89.1 million Washington State Convention Center settlement are not yet finalized in the agreement.
- Future Funding: Sureties have no obligation to provide additional financial assistance beyond current commitments; future funding is discretionary.
- Default Consequences: Events of default allow sureties to terminate funding, declare obligations immediately due, and withdraw funds from managed accounts.
Investor Verification Checklist
- Verify the final terms of the Preferred Shares issuance and the specific "Expected Loss" calculations for each surety panel.
- Monitor the status of negotiations regarding the $89.1 million Washington State Convention Center settlement repayment.
- Review the specific "bad acts" or omissions that could trigger the revocation of debt forgiveness.
- Assess the Company's ability to meet the 20% Expected Loss threshold for project completion to qualify for debt forgiveness.
- Confirm the timeline for the issuance of Preferred Shares, which is required no later than September 30, 2026.