NextBoat has arranged a revolving credit line of up to $5 million for its yacht-sales subsidiary, Off The Hook Yacht Sales NC. The financing is intended to support working capital and inventory purchases, including trade-in vessels, and is backed by a guarantee from NextBoat and a pledge of shares held by the company’s controlling chairman, Jason Ruegg, and an entity he controls.
The arrangement also gives the lender a warrant to buy NextBoat shares. Because the pledged stock represents a substantial portion of the company’s outstanding shares, the collateral and the consequences of a default are important parts of the deal.
Key details
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Credit line and initial funding: Off The Hook may have up to $5 million outstanding at any one time. The lender, RLLT Capital, funded an initial $2 million advance on October 22. The subsidiary may request additional advances in $1 million increments, and can repay and reborrow during the availability period, subject to the $5 million limit and the agreement’s conditions.
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Cost and repayment: Advances carry a fixed annual interest rate of 12.99%, payable monthly. The initial advance carried a $40,000 origination fee; future advances that raise the highest outstanding balance are subject to a 2% fee, with total origination fees capped at $100,000. There is no interest or unused-commitment fee on amounts not borrowed. Outstanding principal and interest are due October 22, 2027, unless both sides agree in writing to extend. Off The Hook can prepay without penalty and can reduce or end the commitment with five business days’ notice.
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Guarantee and default terms: NextBoat unconditionally guarantees Off The Hook’s obligations. The debt is not secured by the operating assets of either company; the only collateral is the pledged NextBoat stock described below. The agreement does not restrict Off The Hook’s existing floorplan financing with Red Oak Inventory Finance. If an event of default occurs, the lender can terminate the commitment, accelerate the debt, enforce the share pledge and seek payment under NextBoat’s guarantee. Default interest may rise by two percentage points after notice. Defaults include payment failures, certain uncured breaches, bankruptcy and certain floorplan debt acceleration.
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Shares pledged by Ruegg and his company: Ruegg and Ruegg Capital Group, an entity he controls, pledged 7,874,000 NextBoat shares as security: 7,221,000 from the company and 653,000 from Ruegg personally. NextBoat valued the shares at approximately $15 million using a 10-trading-day volume-weighted average price of $1.905236 per share. The pledged shares equal about 31.3% of the 25,142,895 shares outstanding as of August 13.
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Additional existing pledge: The new pledge is separate from shares Ruegg Capital Group had pledged to BPC Management, as previously announced. Including that pledge, Ruegg and Ruegg Capital have pledged 10,374,000 shares, or approximately 41.3% of NextBoat’s outstanding common stock. The number of shares pledged for this credit line is fixed; a decline in the share price does not require additional collateral.
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Potential control consequences: Ruegg and Ruegg Capital are not personally guaranteeing Off The Hook’s debt. The lender’s recourse against them is limited to their pledged shares and proceeds from those shares. If a default occurs and a 10-business-day redemption period expires, the lender may sell the pledged stock. A sale could result in a change in control of NextBoat. The pledged shares are held by the company’s transfer agent under an escrow and control arrangement.
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Related-party approval: The transaction involves Ruegg, who is NextBoat’s president, chairman and controlling stockholder, as well as manager of Off The Hook. The board’s audit committee approved the arrangement on October 22. Disinterested directors approved it the following day, with Ruegg abstaining.
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Warrant for the lender: As additional consideration for providing the credit commitment, NextBoat agreed to issue RLLT a warrant for 100,000 shares at $2.50 per share. The warrant will be issued after NYSE American approves the company’s supplemental listing application, which is pending. Once issued, it will be fully vested and last five years. It will be subject to a limit on the lender’s beneficial ownership of 4.99%, or 9.99% if the lender elects that higher limit.
Plain-English implications
The financing provides Off The Hook access to working capital and inventory funding, while putting NextBoat’s guarantee behind the subsidiary’s repayment obligations. The lender’s stock collateral is substantial: a default-related sale could affect control of the parent company, although the agreement does not require more shares to be pledged if NextBoat’s share price falls. The warrant creates a separate potential source of share dilution if exercised; it has not yet been issued, pending exchange approval.