Business Context and Reporting Period
Company: Workhorse Group Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: December 31, 2018
Event: Entry into a Material Definitive Agreement (Credit Agreement) and Termination of a Prior Material Definitive Agreement.
Key Financial Metrics and Transaction Details
This filing details a new financing arrangement rather than standard periodic financial results (revenue, profit, or cash flow for the period are not reported in this document).
- Total Credit Facility: $35 million total capacity.
- Tranche One (Term Loan): $10 million (non-reborrowable).
- Tranche Two (Revolving/Reborrowable): $25 million (subject to purchase orders).
- Interest Rate: LIBOR + 7.625% per annum.
- Use of Proceeds (Tranche One): Repayment of $7.8 million principal plus interest to Arosa Opportunistic Fund LP; remainder for working capital.
- Use of Proceeds (Tranche Two): Vehicle production (contingent on purchase orders).
- Equity Issuance: 8,053,390 Common Stock Purchase Warrants issued to lenders at an exercise price of $1.25 per share.
- Collateral: First priority security interest in substantially all tangible and intangible assets, including real property in Ohio and Indiana.
Material Changes Versus Prior Period
- Debt Restructuring: The Company terminated its existing loan agreement with Arosa Opportunistic Fund LP (dated July 6, 2018) and repaid all outstanding amounts in full using proceeds from the new Tranche One Loans.
- Covenant Obligations: The new agreement imposes specific financial covenants not present in the prior filing, including:
- Minimum liquidity of $4 million (effective March 31, 2019).
- Maximum total leverage ratio of 4.50:1.00 (as of September 30, 2019).
- Maximum debt service coverage ratio of 1.25:1.00 (as of September 30, 2019).
- Board Oversight: Lenders holding a majority of loans are entitled to a non-voting observer seat on the Board of Directors.
Guidance, Risks, and Unusual Items
Management Commentary and Conditions: The ability to borrow under Tranche Two is conditioned on the receipt of purchase orders. The Company may cure breaches of leverage or debt service covenants by raising equity capital, which is added dollar-for-dollar to EBITDA for covenant testing (limited to two fiscal quarters per four-quarter period and four total cures).
Risks and Contingencies:
- Prepayment Penalties: Significant penalties apply for early repayment within the first 18 months (100% of interest due for 12 months if prepaid within 12 months; 50% if prepaid between 12-18 months).
- Mandatory Prepayments: The Company must prepay loans with 100% of net proceeds from casualty events or new debt, 50% from asset dispositions, and 35% from capital stock issuances (after the first 9 months).
- Additional Warrants: The Company must issue additional warrants equal to 10% of any future equity issuances until the later of loan repayment or two years from closing.
- Events of Default: Includes non-payment, breach of covenants, material adverse change, and bankruptcy, which could trigger immediate acceleration of all debt.
Investor Verification Checklist
- Verify the Company's current liquidity position against the $4 million minimum covenant requirement effective March 31, 2019.
- Confirm the status of vehicle purchase orders required to draw down the $25 million Tranche Two facility.
- Review the dilution impact of the 8,053,390 initial warrants and potential future "Additional Warrants" tied to equity raises.
- Assess the impact of prepayment penalties on the Company's ability to refinance or repay debt early.
- Monitor compliance with the 4.50:1.00 leverage ratio and 1.25:1.00 debt service coverage ratio as of September 30, 2019.