California EV start-up Fisker has converted $185.5mn of debt held by a unnamed institutional investor into equity, in a move that the company says will bolster its balance sheet and open the firm up to "potential strategic business deals".
"As of 19 January, Fisker’s outstanding debt under its 2025 convertible notes has been reduced by $185.5mn to $324.5mn from an aggregate originally issued amount of $510mn. This reduction reflects the conversion of a portion of 2025 notes to equity by the investor," the EV maker confirms.
Fisker did not, however, disclose at what share price the notes, which were due to mature in 2025, were converted.
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Amid a tumbling share prices and dwindling cash reserves, with the move the automaker erases a significant chunk of debt from its balance sheet. However, the conversion of debt into equity requires the creation of additional shares, further diluting existing stakeholders.
However, immediately after the announcement of the agreement, Fisker stock spiked by 36pc, with the markets likely buoyed by the immediate effect of Fisker's debt being reduced. Fisker also announced that "the amended agreement waives all financial covenants with respect to restricted cash used for operations".
Despite sinking after the initial rise, Fisker stock is currently 17pc up on a daily basis, potentially bolstered by Fisker and the investor settling that "upon a definitive agreement with a strategic OEM partner, any liens on intellectual property would be released, further enabling the company to pursue strategic collaborations".
“I am pleased that we were able to reach an agreement with one of our investors that will provide increased flexibility and better position us to execute on potential strategic business deals,” eponymous CEO Henrik Fisker says.
The investor in, in effort, converting all of the note to the value of up to $170mn it provided in October, and a small proportion of the $340mn it lent in July.
Dealer appetite
Fisker is also reporting "substantial interest" from potential partner dealers across the US, Canada, and Europe, after it decided earlier this month to tweak its direct sales model. It is currently engaged with over 100 dealers.
The firm is scheduled to host dealers at its headquarters in Manhattan Beach, CA next week. In addition, Henrik Fisker and several executives will attend the National Automobile Dealers Association show in early February to meet with prospective dealers and promote the company’s new dealership model.
Fisker expects the first Ocean e-SUVs to be available in dealer showrooms in February.
And it hopes the new model will increase its ability to turn new vehicles into cash by reducing the time vehicles are retained on its balance sheet. Similar to the traditional OEM/dealer model, Fisker will recognise revenue when a vehicle is sold to a dealer.
Fisker anticipates that it will sell most of the vehicles it currently has in inventory before the end of this year’s first quarter. It aims to provide a delivery update in February.
The carrying value of completed vehicles in Fisker’s inventory at the end of 2023 was c.$290mn, which should be released for working capital once these vehicles can be sold.
It also has the requisite raw materials, including batteries, needed for producing cars in first half of 2024 on the balance sheet, which again can be realised once products are sold. Fisker currently holds c.$260mn of parts, including batteries, which will support the production of Ocean vehicles in 2024.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
