FlexShopper's Strategic Move: Redeeming Preferred Stock Discount
FlexShopper's Strategic Purchase Option for Preferred Stock
FlexShopper, Inc. (NASDAQ: FPAY), a prominent online lease-to-own retailer and payment solutions provider, has made a notable announcement regarding its financial strategy. The company entered into a purchase option agreement with the majority holder of its Series 2 Preferred Stock, which grants FlexShopper the opportunity to redeem 91% of this stock at an astonishing discount. The deal entails a reduction exceeding 50% compared to the forthcoming liquidation preference set for the second quarter of 2024, estimated at around $43 million.
Implications of the Purchase Option
This move signifies a proactive approach by FlexShopper to bolster shareholder value significantly. With a purchase option lasting for a year, this arrangement not only suggests an improvement in the company’s cost of capital but also indicates a simplification of its capital structure. Russ Heiser, CEO of FlexShopper, expressed enthusiasm about this possibility, emphasizing the potential transfer of approximately $23 million in equity value to common shareholders, translating to about $1 per share. Moreover, this redemption will likely add around $4 million to the annual operating income, providing a powerful boost to earnings.
Detailed Benefits of Redeeming Preferred Stock
Enhancing Earnings Potential
One of the most significant advantages of this redemption strategy is the expected enhancement of earnings. The company anticipates saving around $4 million annually on payment-in-kind (PIK) dividends through this repurchase. This is expected to translate into a substantial increase in net income for both common and Preferred Series 1 shareholders once the transaction is finalized.
Substantial Liquidation Discount
The option to repurchase the Series 2 Preferred Stock at a 50%+ discount is a remarkable feature of this agreement. Presently valued at approximately $43 million, the liquidation preference allows FlexShopper to buy back series shares at an estimated $20 million. This kind of discount reinforces the financial prudence behind the decision, positioning the company favorably against possible shifts in the market landscape.
Impact on Common Equity
By utilizing this opportunity to redeem shares, the projected savings—around $23 million—would substantially benefit common shareholders. With these savings equating to nearly $1 per share, it's clear the strategic approach could uplift the stock's market presence significantly.
Financial Projections Post-Redemption
As the situation evolves, FlexShopper has shared illustrative non-GAAP projections reflecting changes in enterprise value and stock price. This redemption is expected to generate a stronger financial foundation, enhancing investor confidence and opening doors for potential growth. The expectations surrounding changes in equity and enterprise valuations highlight the company's commitment to maintaining a robust operational framework.
About FlexShopper
FlexShopper is recognized as a leading national financial technology firm that specializes in innovative payment solutions tailored to the needs of underserved consumers. By offering a variety of flexible funding options—ranging from lease-to-own programs to lending products—FlexShopper ensures a seamless experience through its direct-to-consumer online marketplace as well as partnerships with various merchants.
Frequently Asked Questions
What does FlexShopper's purchase option entail?
FlexShopper's purchase option allows the company to redeem 91% of its Series 2 Preferred Stock at a discount exceeding 50% of its liquidation preference.
How will this redemption impact shareholders?
The redemption is expected to increase earnings by approximately $4 million annually and to transfer about $23 million of equity value to common shareholders.
What is the expected benefit of the discount?
The substantial discount provides FlexShopper the opportunity to improve its cost of capital while simplifying its capital structure.
How might this affect the stock price?
Industry analysts anticipate that this strategic decision could lead to an uplifting of the stock’s market presence, potentially enhancing its value.
What is FlexShopper's business model?
FlexShopper operates as a financial technology company offering innovative payment options through a direct online marketplace and partnerships with merchant locations.
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