Exela Technologies Inc (NASDAQ: XELA) is having an incredibly strong start in the market this morning after the company announced that it has secured a five-year loan for $145 million, leading the company to extinguish debt and adding much needed liquidity to its balance sheet. Here’s what’s going on:
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- Exela Technologies Secures $145 Million Loan
- Why This Is Exciting for Investors
- A Short Squeeze In Play
- Risks to Consider Before Buying XELA Stock
- Final Thoughts
Exela Technologies Secures $145 Million Loan
In the press release, Exela Technologies said that it has entered into a five-year, $145 million term loan facility with Angelo Gordon. Angelo Gordon is a highly respected global alternative investment firm.
In the release, XELA said that the facility will provide it with initial funding of about $92 million. Subject to certain conditions, the company will have further access to approximately $53 million down the line.
The company went on to explain that a portion of the initial funding will be used to retire all debt outstanding under its accounts receivables securitization facility. That facility has a balance of about $83 million.
Why This Is Exciting for Investors
Publicly companies take out loans all the time. What is it about this news that is sending XELA stock screaming for the top?
It all started with an announcement the company made earlier this year. Exela Technologies aimed to improve its liquidity to approximately $150 million. This transaction is a massive stride toward that goal.
In fact, liquidity will be greater than $140 million if the full funding of the new credit facility takes place. That’s a major accomplishment, and something that investors should be excited about.
Beyond that, the added funds are non-dilutive. In many cases, when companies find themselves in the position XELA was in, they look to raise funds through the sale of newly issued shares. However, that causes dilution, robbing existing shareholders of value. This particular transaction will not be dilutive, meaning that investors get to hold onto their value while liquidity is added to the company. Ultimately, it’s a win/win.
Moreover, the news seems to have triggered a short squeeze, which is only expanding the gains seen in XELA stock.
A Short Squeeze In Play
Prior to the release of the news this morning, Exela Technologies had been trading with incredibly heavy short interest.
When a stock starts to tick upward, those who hold short positions start to lose their money. After all, they have to purchase shares to return the shares they borrowed. If they have to pay more to buy and return those shares, losses are realized.
With the news today, investors are excited about the company’s liquidity position, and that started a tick upward in the stock. Then, the shorts started to notice.
As a result, those who shorted XELA stock began racing to cover their positions, only adding to the volume and tremendous price appreciation we’re seeing in the stock today.
Risks to Consider Before Buying XELA Stock
If you’re going to invest, you’re going to have to accept risk regardless of what stock or other investment vehicle you choose to invest in. An investment in XELA stock is no different. Before you dive you, you should consider the following risks:
- The Company Isn’t Making Any Money. Making money is the reason for being in business, and yes, Exela Technologies does generate revenue, but it’s not actually making any money. With more expenses than income, the company is operating at a loss. While plenty of liquidity was added to the balance sheet today, if that well runs dry, dilution may be the result.
- Volatility Risk. XELA is a penny stock, which comes with an added level of risk. Most importantly, penny stocks can be overwhelmingly volatile in the market, making it hard to determine the best times to buy and sell. As a result, novice investors may face significant losses due to the high levels of volatility.
- Adoption. The products at Exela Technologies are generating revenue, but not very much in the grand scheme of things. That tells us that the company hasn’t achieved widespread adoption and may never achieve widespread adoption. As a result, the stock is a highly speculative play, and should adoption not grow substantially, will lead to significant losses.
While there are risks associated with investing in XELA stock, there are risks with any investment. All in all, the news today made the stock a much more appealing opportunity.
With well over $100 million in liquidity on the balance sheet, the company shouldn’t have to raise any funding anytime soon. Moreover, while we haven’t seen widespread adoption, we have seen strong growth in adoption of the company’s products, suggesting that demand is there.
All in all, it’s a risky play, but in the long run, XELA stock has the potential to mint millionaires.