Workhorse Group Inc. 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated October 14, 2020, details material definitive agreements entered into by Workhorse Group Inc. (WKHS) to secure financing and restructure existing debt obligations. The filing reports on a private placement of convertible notes and the exchange of prior convertible notes for common stock.
Key Financial Metrics and Transaction Details
- New Debt Issuance: The Company issued 4.00% Senior Secured Convertible Notes due 2024 with an aggregate principal amount of $200,000,000.
- Net Proceeds: After commissions to Goldman Sachs & Co. LLC and BTIG, LLC, the Company expects net proceeds of approximately $194,500,000, subject to release from escrow upon satisfaction of collateral conditions.
- Interest Terms: Interest is payable quarterly at 4.00% per annum (cash or stock at Company's option), potentially reducible to 2.75% if certain conditions are met.
- Conversion Terms: Notes are convertible into Common Stock at a price of $35.29 per share, subject to adjustments.
- Debt Exchange: The Company exchanged $70.0 million of outstanding 4.50% convertible notes ("Old Notes") held by HT Investments MA LLC for 5,155,167 shares of Common Stock.
- Warrant Issuance: Pursuant to a prior credit agreement, the Company issued warrants to Marathon Lenders to acquire 629,675 shares of Common Stock at an exercise price of $38.82 per share.
Material Changes and Strategic Actions
The primary material change is the entry into a new $200 million secured debt facility, which ranks senior to all unsecured debt. To facilitate this issuance, the Company extinguished $70 million of restrictive "Old Notes" by converting them into equity at a premium. The new notes are secured by liens on substantially all assets of the Company and its subsidiaries and are guaranteed by all current and future subsidiaries.
Outlook, Risks, and Management Commentary
Use of Proceeds: Management intends to use the net proceeds to increase and accelerate production volume, advance new products to market, and support working capital and general corporate purposes.
Risks and Contingencies:
- Escrow Conditions: Proceeds are held in escrow until the Company completes requirements related to collateral; failure to satisfy these conditions could delay funding.
- Covenants: The Indenture includes customary affirmative and negative covenants, including limitations on additional indebtedness, liens, investments, and dividends.
- Forward-Looking Statements: Actual results may differ materially from expectations due to the Company's ability to satisfy conditions for the release of escrowed funds.
Investor Verification Checklist
- Verify the release of the $194.5 million in proceeds from escrow and the satisfaction of collateral requirements.
- Review the full text of the Indenture and Security Agreement (Exhibits 10.1 and 10.3) for specific covenant restrictions on future operations.
- Monitor the dilution impact from the conversion of the $200 million notes and the issuance of 5.16 million shares for the Old Notes exchange.
- Confirm the status of the Registration Rights Agreement regarding the resale of conversion shares.