4/A: Glencore Increases Stake in Li-Cycle with $75 Million Convertible Note Purchase

Glencore Canada Corporation is set to purchase a $75 million senior secured convertible note from Li-Cycle, further solidifying Glencore's investment in the battery recycling company.

Summary

• Glencore plc, along with its subsidiaries Glencore International AG and Glencore Canada Corporation, filed an amendment to a previous Form 4 regarding changes in beneficial ownership of Li-Cycle Holdings Corp.
• On March 11, 2024, Glencore Canada Corporation entered into a Note Purchase Agreement with Li-Cycle to purchase a $75 million senior secured convertible note.
• The closing of the transaction is expected around March 25, 2024.
• The convertible note can be converted into common shares at $0.53 per share, potentially resulting in up to 141,509,433 shares.
• The note matures five years from the closing date, with interest payable semi-annually either in cash (at secured overnight financing rate plus 5%) or in kind (PIK) at 6%.
• The agreement also involves amending and restating existing convertible notes issued in May 2022 into two tranches of A&R Convertible Notes.
• These A&R Convertible Notes have event-driven modifications tied to the Rochester hub project, with potential conversion at $9.95 per share, subject to adjustments.
• Upon certain redemptions, Glencore Canada Corporation will receive warrants to acquire common shares.
• The amendment updates information on derivative securities and footnotes from the original Form 4 filing.

Sentiment

Score: 7

Explanation: The document indicates a positive development for Li-Cycle as it secures additional funding from Glencore. However, the potential dilution from the convertible notes and the complexity of the A&R Convertible Notes warrant caution.

Positives

• Glencore's increased investment signals confidence in Li-Cycle's business model.
• The $75 million infusion provides Li-Cycle with additional capital.
• The conversion feature of the notes could lead to increased equity value for Li-Cycle if the share price appreciates.
• The amendment and restatement of existing notes could simplify Li-Cycle's capital structure.

Negatives

• The convertible notes will dilute existing shareholders if converted.
• The interest payments on the notes will increase Li-Cycle's financial obligations.
• The event-driven modifications of the A&R Convertible Notes add complexity to the agreement.
• The potential for mandatory redemption could require Li-Cycle to use cash to redeem the notes if Glencore does not elect to convert.

Risks

• Delays in the Rochester hub project could impact the modification dates and terms of the A&R Convertible Notes.
• Fluctuations in Li-Cycle's share price could affect the value of the convertible notes and warrants.
• The satisfaction of applicable regulatory conditions is required for the conversion of the Senior Secured Convertible Note.
• The interest rate will be the rate stated above, plus 1% per year (which additional 1% will be payable in cash) in the case that an event of default has occurred and is continuing.

Future Outlook

The closing of the transaction is expected to occur on or about March 25, 2024. The terms of the A&R Convertible Notes will be modified based on the progress of the Rochester hub project, with potential adjustments to the conversion price and other terms.

Industry Context

This investment reflects the growing interest in battery recycling as a key component of the electric vehicle supply chain. Glencore's involvement highlights the strategic importance of securing access to recycled battery materials.

Comparison to Industry Standards

• Convertible notes are a common financing tool in the resource and technology sectors, allowing investors to participate in potential upside while providing downside protection.
• The conversion price of $0.53 per share for the Senior Secured Convertible Note is a key factor in determining the potential dilution to existing shareholders.
• The interest rates on the notes are within the typical range for similar financing arrangements.
• The event-driven modifications of the A&R Convertible Notes are specific to Li-Cycle's Rochester hub project and reflect the project's importance to the company's future.

Related Party Transactions

• The transaction involves Glencore, a significant shareholder and director of Li-Cycle, purchasing a convertible note from the company.

Stakeholder Impact

• Shareholders may experience dilution if the convertible notes are converted into common shares.
• The funding provides Li-Cycle with capital to support its operations and growth.
• The transaction strengthens the relationship between Li-Cycle and Glencore, a key partner.

Next Steps

• Closing of the $75 million senior secured convertible note transaction.
• Amendment and restatement of the existing convertible notes into A&R Convertible Notes.
• Monitoring the progress of the Rochester hub project to determine the modification dates and terms of the A&R Convertible Notes.
• Potential conversion of the notes into common shares.

Key Dates