8-K: Cartesian Growth Corporation II Secures $250,000 Unsecured Promissory Note from Sponsor for Working Capital

Cartesian Growth Corporation II has entered into an unsecured promissory note for $250,000 with its sponsor, CGC II Sponsor LLC, to fund working capital, with the option for conversion into warrants upon a business combination.

Summary

• Cartesian Growth Corporation II (the "Company") issued an unsecured promissory note (the "Note") in the principal amount of $250,000 to CGC II Sponsor LLC (the "Sponsor") on May 27, 2025.
• The Note does not bear interest.
• The principal balance of the Note is payable on the earlier of the date the Company consummates its initial business combination or the date its winding up becomes effective.
• In the event of an initial business combination, the Sponsor has the option to convert all or any portion of the principal outstanding under the Note into Working Capital Warrants.
• The conversion rate for the Working Capital Warrants is $1.00 per warrant, rounded up to the nearest whole number.
• The terms of these Working Capital Warrants will be identical to the private placement warrants issued by the Company at the time of its initial public offering (IPO), including transfer restrictions.
• The issuance of the Note was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
• The Note is subject to customary events of default, such as failure to make required payments or bankruptcy, which would trigger immediate repayment.

Sentiment

Score: 6

Explanation: The issuance of a non-interest-bearing note from the sponsor is a positive sign of continued support and provides necessary working capital. However, it also introduces potential future dilution if converted to warrants, which is a common trade-off in SPAC financing. Overall, it's a neutral to slightly positive development as it facilitates the SPAC's primary objective.

Positives

• Secures $250,000 in non-interest-bearing funding for working capital, providing financial flexibility for the Company's operations.
• The Sponsor's provision of this funding demonstrates continued support and commitment to the Company's objective of completing an initial business combination.
• The conversion option into warrants aligns the Sponsor's interests with the successful consummation of a business combination, as their return is tied to the Company's future equity performance.

Negatives

• Increases the Company's financial obligations by $250,000.
• Potential for future dilution for existing Class A ordinary shareholders if the note is converted into Working Capital Warrants upon a business combination.
• The note is unsecured, meaning the Sponsor would be a general creditor in the event of liquidation prior to a business combination.

Risks

• Failure to Consummate Business Combination: If the Company does not complete an initial business combination, the note becomes due upon winding up, potentially without the option for warrant conversion, impacting the Sponsor's expected return.
• Dilution Risk: Should the note be converted into warrants, it will increase the number of outstanding warrants, which could dilute the value of existing Class A ordinary shares upon their exercise.
• Default Risk: Standard events of default, such as failure to pay the principal amount or bankruptcy, could trigger the immediate repayment of the note, potentially straining the Company's liquidity.

Future Outlook

The issuance of this promissory note provides Cartesian Growth Corporation II with additional working capital, which is crucial for funding its ongoing operations and efforts to identify and consummate an initial business combination. The conversion option into warrants upon a successful business combination aligns the Sponsor's interests with the Company's long-term success.

Management Comments

• The issuance of the Note was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
• Peter Yu, Chief Executive Officer, signed the report on behalf of Cartesian Growth Corporation II.

Industry Context

This transaction is a common practice for Special Purpose Acquisition Companies (SPACs) nearing their deadline to complete a business combination or requiring additional funds for due diligence and operational expenses. Sponsors often provide such non-interest-bearing notes to support the SPAC's efforts, demonstrating their commitment and bridging short-term funding gaps. The conversion into warrants is a typical mechanism to incentivize the sponsor and align their interests with the successful completion of a de-SPAC transaction.

Comparison to Industry Standards

• The issuance of an unsecured, non-interest-bearing promissory note from a SPAC sponsor to the SPAC for working capital is a standard industry practice, particularly as SPACs approach their business combination deadline or require additional funds for transaction-related expenses.
• The conversion feature, allowing the sponsor to convert the note into warrants at a nominal price ($1.00 per warrant in this case), is also a common incentive structure, similar to arrangements seen in other SPACs like Gores Holdings, Churchill Capital, or Pershing Square Tontine Holdings, where sponsors provide capital in exchange for potential equity upside.
• The terms of the Working Capital Warrants being identical to the private placement warrants issued at IPO is consistent with typical SPAC financing structures, ensuring uniformity in warrant terms for the sponsor.
• The waiver of claims against the trust account by the payee (Sponsor) is a standard protective measure for SPAC trust assets, ensuring they are preserved for redemptions or the business combination, while still allowing for repayment from released trust proceeds post-combination.

Related Party Transactions

• Cartesian Growth Corporation II (the Company) issued an unsecured promissory note to CGC II Sponsor LLC (the Sponsor).
• The Sponsor is a related party to the Company.

Stakeholder Impact

• Shareholders: Potential for future dilution if the note is converted into warrants, but the funding supports the Company's ability to complete a business combination, which could ultimately benefit shareholders.
• Sponsor: Provides additional capital to the SPAC and offers the Sponsor the option to convert debt into equity (warrants) upon a successful business combination, aligning their interests with the SPAC's success.

Next Steps

• The Company will continue efforts to identify and consummate an initial business combination.
• Repayment of the note or conversion into warrants will occur upon the earlier of the business combination or winding up of the Company.

Key Dates

Recommendation

Keywords

SPAC, Special Purpose Acquisition Company, Promissory Note, Working Capital, Warrants, Business Combination, SEC Filing, 8-K, Unsecured Debt, Corporate Finance, CGC II Sponsor LLC, Cartesian Growth Corporation II