Top Ships Inc (NASDAQ: TOPS) is having an incredibly strong start to the trading session this morning. The gains came after the company announced that it has entered into a $12.5 million note purchase agreement. Today, we’ll talk about the agreement, how the stock is reacting to the news, a warning to investors, and what we’ll be watching for with regard to TOPS ahead.
TOPS Enters $12.5 Million Note Purchase Agreement
As mentioned above, Top Ships is having an incredibly strong start to the trading session this morning after the company announced that it has entered into a note purchase agreement. The agreement was signed with Crede Capital Group LLC, the same company TOPS recently announced another agreement with. Here are the details on the previous $25 million agreement with Crede.
Nonetheless, under the agreement that was announced today, issuance of a revolving promissory note with Crede will take place. The principal amount on the note will be $12.5 million. The note also includes a single rvolving option for an additional $5 million. According to the press release offered this morning, the notes will have a 2-year term and will bear interest at a rate of 2% per annum for the first 90 days, 10% per annum for the next 90 days, and 15% per annum for the remaining duration of the term. TOPS said in their release that the notes will be pre-payable at the election of the company at any time and will not be converted into equity. Proceeds from the notes are expected to be used to further expand the company’s fleet as well as for general corporate purposes. As is normally the case, the transaction is subject to customary closing conditions.
How The Stock Is Reacting To The News
The news of the note purchase agreement proved to be exciting news for investors. After all, this is non-dillutive financing at its best. Sure, interest in the last 12 months of the agreement is relatively high, but all in all, this is a great way to offer financing to the company. As a result, investors are excited, sending the value of the stock upward and putting a stop to recent declines. Of course, our partners at Trade Ideas were the first to alert us to the gains. At the moment (9:45), TOPS is trading at $0.96 per share after a gain of $0.09 per share (10.91%) thus far today.
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A Warning To Investors
While the news with regard to TOPS seems appealing at the moment, I feel it’s necessary to warn investors as well. Greek shipping companies, the likes of Top Ships, DryShips, and Diana Containerships, have seen some seriously rough times in the past several years. As a result, they have consistently taken part in death spiral financing at the expense of their investors. Moreso, because of where these companies are incorporated, they are protected from legal actions related to a lack of following through with fiduciary responsibilities to investors. As a result, no matter how good things look now, I encourage you to do your due diligence! This can be a very dangerous play!
What We’ll Be Watching Moving Forward
Moving forward, the CNA Finance team will continue to follow TOPS incredibly closely. In particular, we’re interested in watching the company’s ongoing efforts to recover from issues seen over the past several years. We’re also interested in following the financing. While today’s deal is a better one that aligns well with investors, the most recent deals have not been, and we fear that the company may take part in future death spiral financing. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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