Electric truck startup Nikola Corp. is doubling the size of its stock-for-credit line with a private lender to $600 million, enough credit to ramp up production through 2022, the company said Monday.
Nikola (NASDAQ: NKLA) will sell up to $300 million shares to Tumim Stone Capital at a 3% discount and make an up front payment of 252,040 shares worth $3,011,878 at Monday’s closing price of $11.95. The 75 basis points up front and the discount are the same as the terms of the first $300 million equity line of credit (ELOC) Nikola and Tumim announced on June 11.
Compared to the cost of a larger follow-on stock offering, Nikola got a good deal – less than 4% compared to 23% –including 3% in broker fees and a 20% share price discount.
“We understand that we’re building our credibility brick by brick and we recognize that is going to take some time. We still have some uncertainty around the SEC and we’re in the process of trying to resolve that.”
Nikola Chief Financial Officer Kim Brady
“If you were to do a follow-on offering right now, the discount is too high and you have to commit to a certain quantum of capital,” Nikola Chief Financial Officer Kim Brady told FreightWaves. “If you think about our ELOC, it gives us flexibility because we get to time when we issue additional shares.”
The other disadvantage to a public offer would be the dilution impacting current investors.
Terms remain the same
Like the first ELOC, of which Nikola has tapped for $47 million through share sales, Tumim agreed it would not short the stock, which means borrowing shares in a bet their price would decline in value. In exchange, Nikola agreed to avoid seeking a line of credit from a financial institution. Nikola did not rule out a follow-on offering if conditions were right.
“We are always looking at what is the best source of capital at any given time,” Brady said.
With the first phase of a greenfield assembly plant nearing completion in Coolidge, Arizona, Nikola is moving forward with pre-production battery-electric Class 8 daycab trucks and early builds of hydrogen fuel cell models. Both are based on the S-Way from Iveco, its European joint venture partner, which recently completed renovations to a Nikola plant in Ulm, Germany.
“The equity lines with Tumim, together with estimated cash and cash equivalents, will provide Nikola with access to approximately $800 million of liquidity at the end of 2021,” Nikola CEO Mark Russell said in a press release. “We believe this will provide ample liquidity for Nikola to fund our stated operational milestones through the end of 2022.”
Regaining credibility ‘brick by brick’
Brady said Nikola still has a lot to prove following a scandal that started with a short seller’s report that alleged founder and former Executive Chairman Trevor Milton lied about the company’s technological accomplishments to juice the stock price. Milton, who resigned a year ago, faces three federal criminal fraud charges and charges from the Securities and Exchange Commission.
Milton was indicted July 29 and is free on $100 million bond.
“We understand that we’re building our credibility brick by brick and we recognize that is going to take some time,” Brady said. “We still have some uncertainty around the SEC and we’re in the process of trying to resolve that. We suspect that ultimately there will have to be some kind of settlement, which is very typical.”
Clear of criminal charges
Nikola is unlikely to face any criminal charges from the U.S. District Court for the Southern District of New York, which brought the charges against Milton..
Getting any SEC settlement behind it is important “so there’s not an artificial ceiling on our stock price,” Brady said.
Milton, who has sold millions of shares of Nikola stock since his indictment, remains the company’s largest shareholder with about 15% of outstanding shares. Russell owns about 12% of the company stock.
Tumim is not expected to hold Nikola stock over the long term. “They will not short the stock. It does not mean they won’t sell the stock,” Brady said.
But Tumim Managing Partner Maier Tarlow said Tumim looks forward to continuing to be a long-term partner with Nikola.
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