8-K: MSP Recovery Amends Nomura Debt, Secures New Convertible Note Amid Capital Raise Efforts

MSP Recovery, Inc. has amended its promissory note with Nomura Securities International, increasing the principal to approximately $33.6 million, and secured an additional $0.8 million convertible note from Yorkville, while committing to accelerate debt repayment through future capital raises.

Summary

• MSP Recovery, Inc. (the Company) amended and restated its Promissory Note with Nomura Securities International, Inc. (Nomura) on June 26, 2025.
• The principal amount of the Nomura Note was increased to approximately $33.6 million ($33,564,480.81).
• Nomura waived its entitlement to receive up to $3 million of proceeds from the Yorkville Standby Equity Purchase Agreement (SEPA).
• The Nomura Note carries an annual interest rate of 16.0%, which increases by 200 basis points (2.0%) upon an Event of Default. Interest is payable every 30 calendar days and can be capitalized (added to principal) at the Company's election.
• The Nomura Note has a maturity date of November 30, 2026.
• The Company entered into a fourth Convertible Promissory Note with YA II PN, LTD (Yorkville) for an original principal amount of $750,000 on June 26, 2025, as part of the existing SEPA.
• This new note brings the total pre-paid advances from Yorkville under the SEPA to $15.8 million ($10 million in 2023, $5 million in 2024, and $0.8 million in 2025).
• The Yorkville Convertible Note has a maturity date of March 1, 2027, and an annual interest rate of 5%, increasing to 18% upon an Event of Default.
• Yorkville can convert the Convertible Notes into common stock at a price equal to the lower of $2.00 per share or 95% of the lowest daily Volume-Weighted Average Price (VWAP) during the five trading days preceding conversion, with a floor price of $1.00 per share.
• The Company is obligated to use commercially reasonable efforts to prepay the Nomura Note in full within 90 days of the Issuance Date and to raise additional capital for this purpose.
• The Company must provide written updates on its capital raise efforts every 30 days to Nomura.
• The Company must prepay the Nomura Note with 50% of net cash proceeds from its ATM Offering (up to a $3 million cap for other debt repayment) and 100% of net cash proceeds from other Cash Proceeds Events (e.g., other debt issuance, asset sales, litigation settlements).

Sentiment

Score: 4

Explanation: The company secured additional funding and a waiver from Nomura, which are positive for liquidity. However, the increased principal amount of the Nomura Note, its high interest rate, and the strict covenants requiring accelerated repayment and ongoing capital raise efforts indicate significant financial pressure and a challenging debt servicing environment. The need for continuous capital raises and the restrictive debt terms suggest underlying financial strain, leading to a slightly negative sentiment.

Positives

• Nomura waived its entitlement to receive up to $3 million of proceeds from the Yorkville SEPA, providing the Company with more flexibility over those funds.
• The Company successfully secured additional funding of $0.8 million from Yorkville via a convertible note, indicating continued investor support.
• The Company retains the option to prepay the Nomura Note, allowing for flexibility if better financing terms become available or if capital is raised.

Negatives

• The principal amount of the Nomura Note increased to approximately $33.6 million, indicating a higher debt burden.
• The Nomura Note carries a high annual interest rate of 16.0%, which can increase to 18.0% upon default, significantly increasing financing costs.
• The Company is restricted from paying other unsecured indebtedness or making voluntary prepayments on existing debt unless the Nomura Note is simultaneously repaid in full, limiting financial maneuverability.
• The Company is prohibited from declaring or making dividends or repurchasing equity interests, which impacts shareholder returns.
• The Company is under a covenant to use commercially reasonable efforts to prepay the Nomura Note within 90 days of the Issuance Date and raise additional capital, suggesting a pressing need for funds.

Risks

• Financial Default: Failure to pay principal, interest, or other amounts due under the Nomura Note or Yorkville Convertible Note within specified grace periods (e.g., 5 Trading Days for Nomura Note).
• Bankruptcy/Insolvency: Commencement of bankruptcy or insolvency proceedings against the Company or its subsidiaries that remain undismissed for 61 days, or inability to pay debts as they mature.
• Cross-Default: Default on other indebtedness exceeding $5,000,000 (for Yorkville Note) or any other mortgage, indenture, contract, or note (for Nomura Note).
• Delisting of Common Shares: Common Shares ceasing to be quoted or listed on a Primary Market for 10 consecutive Trading Days (for Yorkville Note).
• Change of Control Transaction: A change in control of the Company unless the Yorkville Note is retired.
• Share Delivery Failure: Failure to deliver the required number of Common Shares to the Holder upon conversion of the Yorkville Note within two Trading Days.
• Reporting Non-Compliance: Failure to timely file Periodic Reports (Form 10-K, 10-Q) with the SEC.
• Material Misrepresentation: Any material representation or warranty made by the Company proving incorrect.
• Covenant Breach: Failure to observe or perform any material covenant or agreement contained in the notes or other transaction documents.
• Dilution Risk: Potential for significant dilution to existing shareholders if Yorkville converts its notes into common stock, especially at lower VWAP-based conversion prices.
• Capital Raise Dependency: The Company's ability to prepay the Nomura Note and fund operations is highly dependent on its success in raising additional capital.

Future Outlook

MSP Recovery, Inc. is committed to using commercially reasonable efforts to prepay the Nomura Promissory Note in full within 90 days of its issuance date and to raise additional capital to facilitate this repayment. The Company will provide Nomura with written updates on its capital raise efforts every 30 days. Additionally, the Company plans to utilize proceeds from future Cash Proceeds Events, including its ATM Offering and litigation settlements, to accelerate debt repayment.

Management Comments

• "The Company has duly caused this report to be signed on its behalf by Alexandra Plasencia, General Counsel."
• "Lionheart II Holdings, LLC by John H. Ruiz, Authorized Representative."
• "MSP Recovery, Inc. by John H. Ruiz, CEO."

Industry Context

This filing reflects a common strategy for companies in the healthcare recovery and technology sector, like MSP Recovery, to manage liquidity and fund operations through a combination of debt and equity financing. The high interest rates on the Nomura Note and the convertible nature of the Yorkville funding suggest a reliance on flexible capital solutions, often seen in growth-oriented companies or those with significant litigation-driven revenue streams, which can be unpredictable. The detailed covenants and repayment triggers tied to 'Cash Proceeds Events' indicate a structured approach to debt management, leveraging potential future recoveries or capital market activities.

Legal Proceedings

• The definition of "Cash Proceeds Event" includes "any settlement of or payment to the Company with respect to any litigation that is not encumbered or otherwise due to any Person other than the Holder." This indicates ongoing litigation that could generate proceeds.
• The definition of "Disqualified Persons" for transfer of the Nomura Note includes "any property and casualty insurers, pharmaceutical companies, group health insurers, and healthcare device manufacturers against which the Company or any of its material subsidiaries has filed suit, from time to time, in connection with any healthcare service provider recovery claims." This confirms the Company's involvement in legal actions against specific industry players.

Related Party Transactions

• Proceeds from Permitted Subordinated Debt and 2025 Permitted Subordinated Debt cannot be used for payments (a) for any expenses owed to MSP Recovery Law Firm or any holder of the Company's equity interests or (b) in respect of liabilities (including salary or any other employee obligations) owed to any affiliate of the Company in excess of $2,000,000 in the aggregate in any calendar year. This indicates existing dealings with MSP Recovery Law Firm and affiliates.

Stakeholder Impact

• Shareholders: Potential for significant dilution due to the convertible nature of the Yorkville notes and the ongoing need for capital raises. Restrictions on dividends and share repurchases limit direct returns.
• Creditors (Nomura and Yorkville): Nomura's position is strengthened by increased principal and high interest, along with strict repayment covenants tied to future capital raises and cash events. Yorkville gains flexibility through its conversion rights and ability to offset notes with share sales.
• Employees: Payments for liabilities owed to affiliates (which could include employee obligations to affiliated entities) are capped, potentially impacting compensation structures related to affiliated entities.

Next Steps

• MSP Recovery, Inc. will use commercially reasonable efforts to prepay the Nomura Promissory Note in full within 90 days of June 26, 2025.
• The Company will continue efforts to raise additional capital to facilitate debt repayment.
• The Company will provide Nomura with written updates on its capital raise efforts every 30 days.
• Yorkville may convert its convertible notes into shares of the Company's common stock.
• The Company will apply proceeds from future Cash Proceeds Events (e.g., ATM Offering, litigation settlements) towards debt repayment.

Key Dates

Recommendation

Keywords

MSP Recovery, MSPR, SEC Filing, 8-K, Promissory Note, Nomura Securities, Convertible Note, Yorkville Advisors, Standby Equity Purchase Agreement, SEPA, Debt Financing, Capital Raise, Corporate Debt, Financial Covenants, Dilution, Healthcare Recovery, LifeWallet