Yesterday, Pivotal Acquisition Corp. (PVT),  announced that it had entered into a commitment letter with MGG Investment Group, LP (“MGG”), where Pivotal may borrow up to $150 million of 5-year convertible notes, thus providing a backstop to their business combination with KLDiscovery.  However, there seemed to be some confusion as to just “how much” they’re backstopping.

If you looked at the proxy that was filed the same day, there was language within it that implied the $150 million convertible note was IN ADDITION to the $50 million forward purchase agreement (also with MGG), which would have provided for up to $200 million of backstop, less transaction expenses of ~$19 million.  For instance:

“(b)    the term “Available Closing Date Cash” means, as of immediately prior to the Closing, an aggregate amount equal to the result of (without duplication): (i) the cash available to be released from the Trust Account and the aggregate net cash proceeds actually received from any investment in Parent approved after the date hereof pursuant to Section 4.1(f), including up to $50,000,000 pursuant to the Forward Purchase Contract (if any), minus (ii) the aggregate amount of all redemptions of Parent Common Stock by any Redeeming Stockholders; minus (iii) the Outstanding Parent Expenses, minus (iv) to the extent not included in the Outstanding Parent Expenses, the sum of all outstanding deferred, unpaid or contingent underwriting, broker’s or similar fees, commissions or expenses owed by Parent or any other party to the extent Parent or any of its Subsidiaries is responsible for or obligated to reimburse or repay any such amounts, minus (v) the aggregate amount outstanding under all indebtedness for borrowed money of Parent or Merger Sub (including any Parent Borrowings);”

However, it has now been suggested (on good authority) that the new $150 million convertible note should be considered “in lieu” of the $50 million forward purchase and the language was just a hold over from a previous filing.  As a result, Pivotal would need $25 million to remain in trust in order to satisfy the $175 million available cash at closing condition ($175M – $150M = $25M).  That’s not “fully backstopped”, but it’s still a pretty good backstop for a $233 million SPAC.

However, there’s still an itch that needs to be scratched – are the transaction expenses to be included or excluded? There seems to be a consensus among the SPAC community that it’s not included and Pivotal only need $25 million in trust post-vote.  Maybe we’ll get a revised proxy where they clean up the language so we can all have final clarity.  Additionally, maybe they left in the $50 million Forward Purchase Agreement language in case they need to use it (in a worst case scenario where redemptions leave less than $25 million remaining in trust).

For now, everyone is working with the $25 million cash left in trust post-redemptions figure.  If that changes, an update will be provided.