Pivotal Acquisition Corp. (PVT), filed a new preliminary proxy/S-4 this morning, setting a record date of November 18, 2019, for it’s upcoming shareholder vote to complete it’s combination with KLDiscovery.  The vote date has still not been set, but based on the record date it should now occur roughly mid-December.  Additionally, while the Outside Date of November 6th has not been changed, Pivotal did secure an additional backstop with MGG Investment Group, LP (“MGG”), it’s forward purchaser, ensuring that this transaction is moving forward.

Backstop

On November 7, 2019, Pivotal Acquisition Corp. (PVT) and MGG entered into a commitment letter where Pivotal may borrow (and MGG will lend) up to $150 million of 5-year convertible notes.  However, the principal amount will be reduced if more than $80 million remains in the trust account after redemptions.  As a reminder, this transaction has a minimum cash closing condition of $175 million.  To make it clear, the proxy provided an example:

“As an example, if the trust account holds $130 million in cash after giving effect to such redemptions, then Pivotal may issue $100 million in Convertible Notes. The Convertible Notes will pay interest at a rate of 8% per year, with 4% being paid in cash and 4% being paid in additional Convertible Notes.”

Pivotal will have the option to require the Convertible Notes to be converted into shares of Pivotal common stock at the then-current stock price if the last reported sale price of the Pivotal common stock equals or exceeds $18.00 per share for any 20 trading days in a 30 trading-day period. Pivotal may also repay all or a portion of the Convertible Notes (including any paid-in kind interest) at any time without any prepayment penalty.

If there is a prepayment, the holders of the Convertible Notes will have the option to purchase shares of Pivotal common stock, at any time prior to the maturity of the Convertible Notes.  The price will be equal to the average closing share price for Pivotal common stock for the five trading days prior to the date of the repayment. All principal and accrued but unpaid interest will be due and payable on the fifth anniversary of the consummation of the Business Combination.

In Summary

All told, this Commitment Letter means we have some good news and maybe some “not as good” news.  The good news is, this combination is getting done since it is now fully backstopped.  However, the less good news is, the backstop is in lieu of the deal being re-cut, which was rumored to be the hold-up.  So it would seem that the Pivotal/KLDiscovery teams would rather endure redemptions than yield their positions.  In general, that typically does not bode well for how a combination trades post-closing.  Nonetheless, there seems to be some consensus that KLDiscovery is a nice looking company with lots of potential. So perhaps if this does result in a disappointing trading price post-closing, it will be short-term if the team can execute.  Either way, we’ll found out in about 3-4 weeks time. Stay tuned.