On July 26, Lordstown Motors Corp. (NASDAQ: RIDE) announced that a hedge fund based in the U.S. state of New Jersey, YA II PN, LTD., had agreed to purchase up to US$400 million of newly issued Lordstown stock over a three-year period. The YA purchases will be made from time to time over that period and, surprisingly given Lordstown’s fairly tenuous financial condition, will be done at Lordstown’s – not YA’s – discretion.
We consider this financing structure to be favorable for Lordstown’s shareholders and are surprised that investors have reacted poorly to the news. It was certainly possible that the terms demanded by an outside investor could have been much more demanding.
Additional details about YA’s investment are as follows:
- YA will purchase the shares at a 3% discount to the three-day volume weighted average price (VWAP) of Lordstown’s share price following Lordstown’s notice that it will sell shares to the hedge fund. There is no upper limit on the Lordstown stock price that YA could be obligated to pay.
- If Lordstown issues more than 35.1 million shares to YA, equivalent to 19.9% of Lordstown Class A common shares before this purchase agreement, it must receive the approval of its shareholders.
- YA will not engage in the short sale of Lordstown Motors stock or any Lordstown hedging transaction during the course of this agreement.
- Lordstown will issue YA 371,287 Lordstown Motors shares, currently worth US$2.4 million, as compensation for this agreement.
2Q 2021 Earnings Release Date
Lordstown plans to release its financial results for the quarter ended June 30, 2021 after the market close on August 11. The company continues to state that production of its Endurance™ electric full-size pickup truck will begin in September 2021.
Substantial Cash Burn Rate
On its 1Q 2021 earnings call, Lordstown projected that if it were unable to raise outside financing, its year-end 2021 cash balance could be just US$50 – $75 million, implying an average cash burn rate of US$175 million per quarter over the last three quarters of 2021. The company’s cash balance was US$587 million as of March 31, 2021. Lordstown’s 1Q 2021 operating cash flow deficit plus capital expenditures totaled about US$128 million.
| (in thousands of US $, except for shares outstanding) | Quarter Ended March 31, 2021 | Year Ended December 31, 2020 |
| Operating Income | ($106,626) | ($102,481) |
| Operating Cash Flow | ($71,520) | ($64,320) |
| Cash – Period End | $587,043 | $629,761 |
| Debt – Period End | $1,015 | $1,015 |
| Shares Outstanding (Millions) | 176.6 | 168.0 |
Lordstown Motors plans to produce a potentially pathbreaking electric pick-up truck for which there could be a significant market. However, operational, financial, and legal issues seemed to the make that prospect a less certain and more distant one. Now, this financing agreement with YA could alleviate a significant portion of this uncertainty.
Lordstown Motors Corp. last traded at US$6.34 on the NASDAQ.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
