Business Context and Reporting Period
Company: Mudrick Capital Acquisition Corporation (Parent) and Hycroft Mining Corporation (Seller).
Date: January 13, 2020.
Event: Entry into a Material Definitive Agreement (Purchase Agreement) to consummate a business combination. Mudrick Capital Acquisition Corporation, a Special Purpose Acquisition Company (SPAC), will acquire Hycroft Mining Corporation, a Delaware corporation focused on the Hycroft mine.
Key Financial Metrics and Transaction Structure
Consideration: The transaction value is based on a base of $325,000,000 in Parent Class A Common Stock, adjusted for surrendered shares, debt exchanges, and cash payments. Shares are valued at $10.00 per share.
Debt Assumption and Financing:
- Sprott Credit Agreement: Parent will assume a multi-tranche credit agreement with an original principal amount not to exceed $110,000,000.
- Royalty Agreement: A subsidiary will receive $30,000,000 and incur a 1.5% net smelter royalty obligation on the Hycroft mine.
- Debt Exchanges: Holders of 1.25 lien notes will exchange for new subordinated notes (up to $80,000,000 assumed by Parent). Holders of second lien notes will convert to common stock.
Liquidity and Cash Requirements:
- Pre-Closing Cash: Combined entity must have at least $210,000,000 in available cash immediately prior to closing.
- Post-Closing Cash: Combined entity must have at least $50,000,000 in unrestricted and available cash immediately following closing.
- Net Tangible Assets: Parent must have at least $5,000,001 of net tangible assets at closing.
PIPE Investment: Initial Investors (affiliated with Mudrick Capital, Whitebox Advisors, Highbridge, Aristeia, and Wolverine) have agreed to purchase $65,000,000 of Parent Class A Common Stock at $10.00 per share, plus 3,250,000 warrants exercisable at $11.50 per share.
Material Changes and Transaction Mechanics
Capital Structure Changes:
- Equity Issuance: Significant issuance of Parent Class A Common Stock to Hycroft stockholders and debt holders.
- Sponsor Surrender: The Parent Sponsor will surrender a portion of its Class B common stock (approximately 1,941,667 shares plus an adjustment factor) for no consideration to maintain economic alignment.
- Forward Purchase: The Sponsor will purchase 2,500,000 Parent Units and 625,000 shares of Class A Common Stock for $25,000,000 concurrently with closing.
Debt Restructuring: The transaction involves complex exchanges where certain debt holders receive cash (subject to liquidity thresholds) and equity, while other debt is assumed or converted.
Guidance, Outlook, Risks, and Contingencies
Conditions to Closing: The transaction is subject to customary conditions, including stockholder approval from both Parent and Seller, expiration of the HSR Act waiting period, NASDAQ listing approval, and effectiveness of the Form S-4 Registration Statement.
Termination Provisions:
- Outside Date: February 12, 2020 (extendable to August 12, 2020 with stockholder approval).
- Termination Fee: If Seller's stockholders do not approve the transaction within 25 business days of the Registration Statement effectiveness, Seller must pay Parent a termination fee of $12,730,000.
Risks and Contingencies:
- Failure to obtain necessary regulatory or stockholder approvals.
- Redemptions by Parent stockholders reducing cash below required thresholds ($210M pre-closing, $50M post-closing).
- Disruption of Hycroft's operations during the transaction process.
- Forward-looking statements regarding future revenues and earnings are subject to significant uncertainties.
Investor Verification Checklist
- Verify the final amount of cash remaining in the Parent's trust account after stockholder redemptions to ensure the $210M pre-closing and $50M post-closing liquidity thresholds are met.
- Confirm the exact number of shares to be issued to Hycroft stockholders and debt holders once the final debt exchange calculations (cash vs. equity) are determined.
- Review the definitive Form S-4 Registration Statement for detailed risk factors and the final capitalization table.
- Monitor the status of the Sprott Credit Agreement and the 1.5% net smelter royalty agreement terms.
- Check for any updates regarding the "Outside Date" extension if the transaction is not consummated by February 12, 2020.