8-K: Li-Cycle Files for Creditor Protection, Enters DIP Financing and Stalking Horse Agreement with Glencore

Li-Cycle commences voluntary restructuring under CCAA and Chapter 15, secures DIP financing from Glencore, and enters into a stalking horse agreement for asset sales.

Summary

• Li-Cycle Holdings Corp. and its North American subsidiaries have initiated a voluntary restructuring under the Companies' Creditors Arrangement Act (CCAA) in Canada.
• The company's U.S. subsidiaries have commenced Chapter 15 proceedings in the United States Bankruptcy Court for the Southern District of New York for recognition of the CCAA proceedings.
• Li-Cycle has secured a debtor-in-possession (DIP) financing facility of up to $10.5 million from Glencore International AG, subject to court approval.
• The company has entered into a stalking horse agreement with Glencore for at least $40 million, including certain subsidiaries and assets.
• The Germany Spoke is expected to continue operating during the CCAA proceedings.
• Li-Cycle is winding down certain European and Asian subsidiaries.
• The company's board determined that commencing CCAA proceedings was in the best interest of the company.
• Li-Cycle's common shares will move to the OTC Pink Markets effective May 15, 2025, under the ticker symbol LICYQ.
• The company intends to seek approval of the DIP Facility, the SISP, and the Stalking Horse Agreement at a comeback hearing on May 22, 2025.

Sentiment

Score: 3

Explanation: The document indicates significant financial distress and restructuring, offset slightly by secured financing and a stalking horse agreement. The overall outlook is uncertain.

Positives

• The DIP financing provides working capital to continue operations, particularly for the Germany Spoke.
• The stalking horse agreement sets a baseline for the sale and investment solicitation process.
• The company's board and management will remain responsible for day-to-day operations under the Monitor's oversight.

Negatives

• The commencement of CCAA and Chapter 15 proceedings indicates significant financial distress.
• The company no longer qualifies to trade on the OTCQX Best Market and will move to the OTC Pink Markets.
• An event of default has occurred under the company's loan agreement with the U.S. Department of Energy.
• The company is winding down certain European and Asian subsidiaries.

Risks

• Trading in the company's securities during the restructuring proceedings is highly speculative and poses substantial risks.
• The company's ability to successfully complete a sale process under Chapter 15 and/or the CCAA is uncertain.
• Potential adverse effects of the restructuring proceedings on the company's liquidity and results of operations exist.
• The company's ability to obtain timely approval by the applicable courts is not guaranteed.
• Employee attrition and the company's ability to retain senior management and other key personnel are concerns.
• The company's ability to comply with the restrictions imposed by the DIP Facility and other financing arrangements is a risk.
• Maintaining relationships with suppliers, customers, employees, and other third parties is a challenge.
• Increased administrative and legal costs related to the Chapter 15 and CCAA proceedings are expected.

Future Outlook

Li-Cycle expects to conduct a court-supervised sale and investment solicitation process (SISP) and implement one or more transactions with respect to its business and assets.

Management Comments

• The Companys Board of Directors, following receipt of the recommendation of the Companys Special Committee of independent directors, determined that it was in the best interest of the Company to commence the CCAA proceedings, with a view to pursuing the SISP and implementing one or more transactions with respect to its business and assets.

Industry Context

The announcement reflects challenges in the lithium-ion battery recycling industry, potentially due to factors such as high capital costs, technological hurdles, and fluctuating commodity prices. Other companies in the resource recovery sector may face similar pressures.

Comparison to Industry Standards

• It is difficult to compare Li-Cycle's situation to industry standards without specific financial benchmarks for the lithium-ion battery recycling sector.
• Comparable companies in the broader recycling and resource recovery space, such as Redwood Materials, may offer some context, but their specific financial details are not provided in this document.
• The success of the restructuring and SISP will depend on attracting buyers willing to invest in the company's technology and assets.

Legal Proceedings

• The company and its North American subsidiaries have initiated a voluntary restructuring under the Companies' Creditors Arrangement Act (CCAA) in Canada.
• The company's U.S. subsidiaries have commenced Chapter 15 proceedings in the United States Bankruptcy Court for the Southern District of New York for recognition of the CCAA proceedings.

Related Party Transactions

• The company has secured a debtor-in-possession (DIP) financing facility from Glencore International AG, an affiliate of Glencore Canada Corporation.
• The company has entered into a stalking horse agreement with Glencore for at least $40 million, including certain subsidiaries and assets.

Stakeholder Impact

• Shareholders face substantial risks due to the speculative nature of trading during restructuring.
• Employees may experience uncertainty and potential job losses due to the restructuring and winding down of certain subsidiaries.
• Customers and suppliers may be affected by the company's restructuring and potential changes in operations.
• Creditors are subject to the applicable provisions of orders under the CCAA and the Bankruptcy Code.

Next Steps

• Seek approval of the DIP Facility, the SISP, and the Stalking Horse Agreement at the comeback hearing on May 22, 2025.
• Conduct a court-supervised sale and investment solicitation process (SISP).
• Wind down certain European and Asian subsidiaries.

Key Dates

Keywords

Li-Cycle, restructuring, CCAA, Chapter 15, Glencore, DIP financing, stalking horse agreement, bankruptcy, lithium-ion battery recycling, SISP