The Debt That Survived the SPAC Wreckage
Most of the SPAC boom is now a cautionary tale – blank check companies that went public between 2020 and 2022, merged with targets at inflated valuations, and then watched their share prices collapse as retail enthusiasm evaporated and institutional investors moved on. But a quieter story is playing out inside the survivors. A specific category of debt, sometimes called special purpose acquisition debt or SPAD, is reappearing on balance sheets of companies that completed SPAC mergers and are now navigating the aftermath with leverage tools that barely existed before the boom made them necessary.
This isn’t the trust-account mechanics or redemption arbitrage that dominated SPAC coverage at the peak. This is post-merger credit – structured debt taken on by de-SPAC companies that couldn’t access traditional capital markets cleanly, either because their balance sheets were too thin, their operating histories too short, or their investor bases too volatile to support conventional bond offerings. The structure borrows from elements of bridge financing, mezzanine lending, and in some cases project finance, with repayment tied to operating milestones or revenue thresholds rather than fixed schedules.
It’s an obscure corner of credit markets, and it’s growing.
Why De-SPAC Companies Turned to Specialty Debt
The mechanics start with a structural problem. When a SPAC completes a merger, the surviving entity often ends up with less cash than projected because investors exercised redemption rights – pulling their funds from the trust rather than rolling them into the combined company. A SPAC that raised $300 million might deliver only $40 or $50 million to the operating company after redemptions, leaving that company with a public listing but a yawning gap between its actual capitalization and its spending plans. Traditional lenders, looking at thin equity bases and no operating track record as a public company, are often reluctant to step in at competitive rates.
Specialty lenders – including certain private credit funds, family offices, and a handful of dedicated de-SPAC credit vehicles – filled that gap. The debt they provide carries higher interest rates than investment-grade corporate credit, reflecting the real risk involved, but it also comes with structural features that conventional high-yield debt doesn’t offer. Covenant packages tend to be looser on leverage ratios and tighter on operational triggers – things like minimum recurring revenue, customer retention floors, or pipeline milestones. Some structures include equity kickers, giving lenders warrant coverage that compensates for the elevated default risk.
The result is a credit product that functions almost like a hybrid – part loan, part convertible note, part operational bet. For borrowers, it provides runway without the dilution of a secondary equity offering into a weak market. For lenders willing to do the work, it offers yield premiums that plain-vanilla corporate credit simply doesn’t generate right now.
The Risks That Make This Worth Watching Closely
The structural complexity of special purpose acquisition debt cuts both ways. The same features that make it attractive to specialty lenders – customized covenants, warrant coverage, milestone-linked repayment – also make it extremely difficult to price from the outside. Unlike investment-grade bonds or syndicated leveraged loans, this debt rarely trades on secondary markets. When it does change hands, it typically does so through bilateral negotiations that produce no public price discovery. That opacity is a feature for borrowers who don’t want their financing stress broadcast to equity markets, but it’s a real limitation for anyone trying to assess the credit risk embedded in a de-SPAC company’s balance sheet.
Default rates across the de-SPAC universe are not something any single institution tracks comprehensively. What is observable is that a meaningful number of companies that went public via SPAC merger between 2020 and 2022 have since filed for bankruptcy, conducted distressed debt exchanges, or quietly negotiated amendments that extended maturities in exchange for higher rates or additional equity dilution. In each of those situations, the existence and structure of specialty acquisition debt determined who recovered what – and in many cases, the complexity of the debt stack made recoveries lower and timelines longer than they would have been with conventional senior secured lending.
There’s also a concentration problem. The market for de-SPAC credit is not wide. A relatively small number of lenders have built meaningful expertise in this structure, which means that when stress events hit multiple de-SPAC companies simultaneously – as happened during the 2022 rate shock – those lenders faced correlated exposures with limited exit options. That dynamic hasn’t fully resolved. Several de-SPAC companies that restructured their specialty debt in 2022 and 2023 are now approaching the end of extended maturities, which means another wave of refinancing pressure is building quietly, largely outside of public view.
What Investors Should Actually Do With This Information
For equity investors holding shares in companies that went public via SPAC, the practical step is straightforward: read the credit agreements disclosed in 10-K filings, not just the summary descriptions in the debt footnotes. Companies are required to file material credit agreements as exhibits, and those documents reveal exactly what operational triggers their lenders can pull. A company reporting healthy gross margins but sitting on specialty acquisition debt with a minimum revenue covenant set just slightly above its current run rate is a very different risk profile than it looks on a standard income statement screen.
For credit-focused investors, the opportunity in this space requires accepting the illiquidity. There’s no liquid market to exit into if a thesis goes wrong. The yield premiums are real, but so is the binary nature of outcomes – de-SPAC companies either find a path to self-sustaining cash flow or they don’t, and the middle ground of a slow, managed restructuring is considerably messier here than with conventional leveraged credit. Private credit funds specializing in this area know this and price accordingly, but individual investors or smaller family offices entering the space without deep operational due diligence capacity are taking on risks they likely can’t fully underwrite. The tightening of bank credit standards has pushed more borrowers toward exactly these kinds of specialty structures, which expands the addressable market but also means the pipeline increasingly includes names that couldn’t clear conventional credit hurdles for substantive reasons.
The companies most likely to manage this debt successfully share a specific profile: they generate recurring, contracted revenue rather than lumpy project-based income, they have at least one institutional investor still actively involved in the equity, and their management teams have navigated at least one prior refinancing under pressure. Companies missing two of those three characteristics have a much narrower window before their specialty debt becomes a liquidation timeline.
The next 18 months will force a reckoning for a significant portion of the de-SPAC credit stack that was extended or amended in 2022 and 2023. Some of those companies will have grown into their capital structures. Others will arrive at maturity dates with the same problems they had three years ago, just with higher rates and fewer patient lenders willing to extend again – and the quiet part of that story is that most equity investors in those companies won’t see it coming until the amendment disclosure hits a Friday afternoon 8-K.
