Workhorse Group WKHS is selling $200 million in new debt to build up cash it needs to increase production of its electric delivery vans. It is also converting a more expensive note to new stock.
Issuing new debt is a common tactic for Workhorse. Borrowing costs less now because investors are betting Workhorse will win at least part of a $6.3 billion contract to build next-generation delivery vehicles for the U.S. Post Service. Its stock languished in the low single digits, trading as low as $2.11 a share on April 15.
Workhorse shares traded at $29.06 at 10:43 a.m. EDT Monday, up 8.52%.
Advancing early production
The Loveland, Ohio-based company is producing composite-body electric delivery vans at a plant in Union City, Indiana. The new money will allow the addition of a refrigerated van for grocery delivery, Workhorse CEO Duane Hughes said in a press release.
"These new vehicles within our portfolio of products, along with the expanding operations of our drone business, will help to further solidify our leadership and reach in the last-mile EV delivery segment," he said.
The U.S. Environmental Protection Agency greenlighted Workhorse to sell the vans as zero-emission vehicles in all 50 states. The C-Series vans also are part of a California voucher program that allow buyers to significantly reduce the purchase cost.
Workhorse has a pending contract with United Parcel Service UPS to deliver 950 vans along with smaller contracts for other customers.
Financial engineering
Like it has done several times in recent years, Workhorse is financially engineering its business. It will receive approximately $194.5 million from sale of the new notes, which can be exchanged for company stock at $36.14 per share, a 35% premium over the Friday's closing price.
The money provides breathing room as Workhorse moves from producing 400 vans this year to several thousand in 2021.
The company did not immediately respond to a FreightWaves' question about its progress in securing a bank-backed credit revolver, which Chief Financial Officer Steve Schrader has said was the best way to pay for production ramp up.
Workhorse is paying 4% annual interest in quarterly payments on the new senior secured convertible notes due in 2024. The two "institutional lenders" were not named in a company press release. No filing was posted on the U.S. Securities and Exchange (SEC) website Monday morning.
The interest rate could be reduced to 2.75% under certain conditions. Workhorse can pay the interest in cash or stock.
Converting debt to stock
Additionally, Workhorse is swapping shares for $70 million in debt arranged in two senior debt note sales ti HT Investments (High Trail Capital) in December 2019 and June this year. HT Capital gets shares priced $19 each, a 31% premium to the June 29 closing price of $14.51.
At Workhorse's current price, HT Investments locks in a significant gain while the additional new shares dilute other owners.
"With this financing in place, we can more quickly advance our production efforts heading into 2021 by increasing our supply chain component volumes, hiring more manufacturing employees and automating certain sub-assembly processes," Hughes said.
Workhorse will have more than $270 million in cash available after the closing and release of the proceeds.
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