Workhorse Group Inc. (NASDAQ: WKHS) has secured a $41 million loan in its third hedge fund deal in a year that the electric truck maker said will let it build out a backlog of 1,100 orders for lightweight commercial delivery vans.
Financially challenged Workhorse, which booked just $4,000 in revenue in the third quarter, will use the proceeds from the new loan to pay off Marathon Asset Management, which charged 7.625% annual interest on a total loan of $35 million. Workhorse used the Marathon loan to pay off a loan provided by Arosa Opportunistic Fund.
The new lender, High Trail Capital, will charge Workhorse 4.5% a year to be paid quarterly beginning in February 2020. High Trail will be paid first among debts Workhorse owes. The loan is due in November 2022.
Workhorse can pay the loan interest in cash or a combination of cash and stock valued at $3.05 a share. When the loan is paid off, High Trail will receive warrants to buy up to 15,459,016 company shares. Workhorse shares traded at $2.74 on Friday, Nov. 22.
"Our new lender is the right partner at the right time for this stage in our company's development, and we look forward to a mutually beneficial working relationship," Workhorse CEO Duane Hughes said in a press release.
"We now have the resources to deliver on our outstanding orders," Hughes said. "We also have the freedom to pursue other strategic initiatives where we've already made significant investments."
The additional flexibility includes earlier access to loan funds than Workhorse had in the Marathon deal, said Jeffrey Osborne, an analyst with Cowen & Co.
In addition to building its C-Series lightweight delivery vans at a plant in Union City, Indiana, Workhorse has a 50-50 joint venture with Moog Inc. (NYSE: Moog-A) to advance a truck-based delivery drone.
Workhorse also is a 10% owner of Lordstown Motors Corp., a venture started by Workhorse founder Steve Burns that plans to build electric pickup trucks in a former General Motors Co. (NYSE: GM) factory in northeast Ohio. It will receive royalties for technology licensed to Lordstown and for each of 6,000 pre-orders for electric pickups that become actual orders.
Workhorse demonstrated prototypes of the C-1000 cubic-foot and C-650 cubic-foot vans on Nov. 5 at the Transportation Research Center in East Liberty, Ohio. Hughes said the ride-and-drives led to a new order for the vans. He did not disclose the buyer or the number of vans ordered. United Parcel Service Inc. (NYSE: UPS) previously ordered 950 Workhorse vans.
"We plan to get through the entire backlog into 2020 with additional vehicles behind that as well," Hughes said during a Nov. 8 call with analysts.
Osborne said in a note to investors that his model shows Workhorse building about 750 trucks in fiscal year 2020.
Separately, Workhorse said Nov. 13 that it has ordered 5,200 battery packs from Indianapolis-based EnerDel for the C-Series vans. The EnerDel Vigor+ packs are capable of up to 125 miles on a single charge, which fits with the range demands of most package pickup-and-delivery businesses.
Workhorse has a separate partnership with Duke Energy (NYSE: DUK) under which Duke would purchase batteries from Workhorse that it would lease to van customers. It also would seek second-life uses for the batteries after their usefulness in the vans is exhausted.
"While we continue to take a conservative stance we see a path to profitability in 2H21 given the potential of the Workhorse's strategic partnership with Duke Energy, which could enable greater electric vehicle adoption in the commercial truck market," Osborne said.
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