Instruments
Standby equity purchase agreement: how a SEPA works
A standby equity purchase agreement, or SEPA, is a contract under which an investor stands ready to subscribe for newly issued shares whenever a listed issuer serves an advance notice, at a price struck from a volume-weighted average over a short window that opens with the notice. The issuer controls timing and size; the investor funds a compliant notice.
Key takeaways
- SEPA is one group's house term. Search the SEC filing corpus for the phrase and it returns, overwhelmingly, agreements with YA II PN, Ltd., managed by Yorkville Advisors Global. The structure is generic; the label is not.
- The advance notice is the whole mechanism. It fixes the amount, opens the pricing window and, where the document allows, sets a minimum acceptable price for that draw alone.
- Advance size is tied to traded volume. Published agreements cap a single advance against recent daily trading volume, so the facility cannot deliver more stock than the tape can carry.
- The minimum acceptable price is your only price protection. Days on which the reference price falls below it drop out of the calculation, cutting both the shares delivered and the cash received.
- A pre-paid advance is a different product. Paired with one, the issuer has taken a convertible note, and the discretion that defines a facility is materially reduced.
Who actually uses the term
SEPA is not a term of art with a settled legal meaning. It is the name one family of documents uses, and that family is dominated by a single counterparty: run a full-text search of SEC filings for "standby equity purchase agreement" and the results are overwhelmingly agreements with YA II PN, Ltd., a fund managed by Yorkville Advisors Global. Reading a handful of those filings is the fastest education available in this structure, and it costs nothing.
The label is also recent. Through the 2000s and 2010s the same provider's documents were called standby equity distribution agreements, and that older name is still current in UK and European announcements. The two describe one structure; the difference is provider and era, not substance. If a term sheet tells you otherwise, ask which clause carries the distinction.
How an advance notice works
Everything the facility does happens between the advance notice and settlement. The notice states the amount. The pricing window opens, commonly running a small number of consecutive trading days from the notice. At the end of it the reference price is computed, the share count falls out of the arithmetic, and settlement follows through the transfer agent against payment.
| Decision | Who decides | What it means |
|---|---|---|
| Whether to draw at all | Issuer | The facility can expire unused; the commitment fee is still earned |
| Size of a single advance | Issuer, within the cap | The cap is set against recent daily trading volume |
| Timing of the notice | Issuer | Notices are commonly served after a disclosure, not before one |
| The reference price | Neither; it is a formula | Computed from the VWAP across the pricing window |
| A floor for that advance | Issuer, where the document allows | Days below the floor drop out and reduce the draw |
| Funding a compliant notice | Investor is obliged | Subject to the conditions precedent in the agreement |
| Reselling the shares received | Investor | Resale is the investor's business, and it is why the window is short |
| Raising the ownership blocker | Investor, by election | Commonly from 4.99% to 9.99% on notice to the issuer |
| General description of market documentation. Not an offer, a quote, or a rate card. | ||
The pre-paid advance changes the risk
Many SEPAs in the filing record are signed alongside a pre-paid advance: the investor advances cash up front against a promissory note that converts into shares, and later advances under the facility are applied to retire it. Read that twice, because it inverts the structure. A plain facility is an option the issuer need not exercise. A pre-paid advance is money already taken that must be repaid, usually in stock, on a schedule that no longer belongs entirely to the issuer, and frequently with an amortisation trigger keyed to the share price. It is a convertible note wearing a facility's clothes, and it should be modelled as one: see dilution and conversion mechanics.
What has to be true before you can draw
In the United States a SEPA is unusable until the registration statement covering the resale of the facility shares is effective, and it stops being usable the moment it is not. A stop order, a lapsed prospectus or stale financial statements all halt advances, which is why the registration undertaking in the agreement is a live obligation rather than a closing item. See resale registration statement for how that statement is built, and Rule 144 for the alternative route that a facility deliberately does not rely on.
The exchange cap in the agreement is a listing rule in contractual form. On Nasdaq, shareholder approval is required before a 20% Issuance priced below the Minimum Price under Listing Rule 5635(d), where Minimum Price is the lower of the closing price immediately preceding the signing of the binding agreement and the average closing price for the five trading days preceding it. Facilities are drafted with a cap below that threshold so a routine advance never needs a vote. Comparable capacity limits apply on other venues: see financing a US-listed issuer. If a pre-paid advance is already on the table, send the term sheet, the float and the median daily traded value. The rule is set out on this site under the Nasdaq 20% rule.
Where the name came from, and why there are two
The structure was popularised in the early 2000s under a different label: the standby equity distribution agreement, attached to documentation from Cornell Capital Partners, the fund that later became YA Global Investments and whose manager trades as Yorkville Advisors. Through that decade and the next, SEDA is what the filings, the prospectuses and the press releases said.
US documentation shifted to standby equity purchase agreement in the early 2020s, and SEPA now dominates the SEC filing corpus — heavily enough that a full-text search of EDGAR for the phrase returns, in the main, filings connected with one manager's own transactions. That is worth knowing before reading the corpus as though it were a market survey. Outside the United States the older term never left: UK, AIM and European issuers still announce SEDAs. No mechanic changed when the vocabulary did. Both names describe a commitment, a notice, a pricing window and a formula price, and if a provider presents its SEDA as a distinct product the right question is which clause carries the distinction. In most documents there is no such clause. What genuinely differs is the jurisdiction, and that is set out on standby equity facilities outside the United States.
General information, not legal advice. The effectiveness of a registration statement, the availability of Rule 144 and the application of any exchange rule depend on facts specific to the issuer, and the terms summarised here are drawn from published market documentation rather than from any particular agreement. Take advice from qualified securities counsel in the relevant jurisdiction before agreeing terms.
Related reading
Sub-hub
Equity facilities
The eight terms that define any facility, and the four names the market uses for them.
Compare the whole family →Instrument
Committed equity facility
The US purchase-agreement cousin: what "committed" means and which conditions release the investor.
What is actually committed →Instrument
Share subscription facility
The long averaging window used outside the United States, and the credit line it is confused with.
Subscription facility mechanics →Primary sources
- U.S. Securities and Exchange Commission — EDGAR full-text search (read the filed agreements)
- U.S. Securities and Exchange Commission — Securities Act Sections CFIs, Question 139.13
- Nasdaq Listing Rules — Rule 5635(d), 20% Issuance and Minimum Price
- eCFR — 17 CFR 240.13d-1, filing of Schedules 13D and 13G
SEPAs: frequently asked questions
What is a standby equity purchase agreement?
A standby equity purchase agreement is a contract under which an investor agrees to subscribe for newly issued shares of a listed company whenever the company serves an advance notice, up to an agreed commitment amount and within an agreed commitment period. The price of each advance is a formula struck from a volume-weighted average price measured over a short window that opens with the notice.
Is a SEPA different from a SEDA?
Not in substance. A standby equity distribution agreement is the older name for the same structure, and it is still the usual label in UK and European announcements, while standby equity purchase agreement dominates SEC filings. Treat any claimed distinction with suspicion and ask which clause carries it, because in most documents there is no such clause.
Who decides when a SEPA is drawn?
The issuer, subject to conditions. The issuer chooses whether to serve an advance notice at all, when to serve it and how large it is within the volume-linked cap, and in most documents may set a minimum acceptable price for that advance. The investor's side of the bargain is to fund a notice that complies with the agreement.
What is a pre-paid advance under a SEPA?
A cash advance made up front against a promissory note that converts into shares, with later advances under the facility applied to retire it. It inverts the structure. A plain facility is an option the issuer need not exercise, whereas a pre-paid advance is money already taken that has to be repaid, usually in stock, on terms that no longer belong entirely to the issuer.
What has to be in place before an advance can be funded?
In the United States, an effective registration statement covering the resale of the facility shares, with no stop order and a current prospectus. The agreement will also require the representations to remain accurate, trading not to be suspended, and headroom under the beneficial ownership limitation and the exchange cap.
Model the advances
Before you sign a standby facility, model the advances.
Tell us the exchange, the free float, median daily traded value and the amount you need each quarter. What comes back is an advance schedule the float can carry, with the exchange cap and the registration condition already in it.