8-K: Li-Cycle Secures $75 Million Investment from Glencore, Amends Existing Convertible Note

Li-Cycle has secured a $75 million strategic investment from Glencore, amending an existing convertible note and demonstrating Glencores support for Li-Cycles recycling technology.

Summary

• Li-Cycle has entered into an agreement with Glencore for a $75 million senior secured convertible note.
• The note matures in five years and has an initial conversion price of $0.53 per share.
• Interest on the note can be paid in cash at SOFR plus 5% or in-kind at SOFR plus 6%.
• Li-Cycle will be required to redeem a portion of the note starting in 2026 based on a percentage of excess cash flow.
• Glencore will receive warrants upon redemption of the note.
• The existing Glencore convertible note will be amended and restated in two tranches with new terms taking effect at future dates.
• Glencore will receive two additional board seats, for a total of three, with the new nominees being independent of Glencore.
• The transaction is expected to close on or about March 25, 2024.
• Li-Cycle has obtained a waiver from the NYSE for shareholder approval of the transaction based on financial viability concerns.

Sentiment

Score: 4

Explanation: While the investment provides needed capital, the reliance on a financial viability exception and the granting of security interests indicate a challenging financial situation. The terms of the note are not particularly favorable to the company, and the potential for a change of control adds to the negative sentiment.

Positives

• The investment provides Li-Cycle with improved liquidity.
• The transaction enhances Li-Cycle and Glencores existing long-term, strategic partnership.
• Glencores investment demonstrates its endorsement of Li-Cycles technology and development plans.
• The amended convertible note provides for extended maturity and market-based re-pricing.
• The transaction includes a security interest in two future tranches of the amended convertible note.

Negatives

• The transaction requires Li-Cycle to provide a security interest in substantially all of its assets.
• The transaction includes certain reporting and operational covenants that may limit Li-Cycles flexibility.
• The transaction may result in a change of control of the Company depending on future events.
• The transaction requires Li-Cycle to redeem a portion of the note starting in 2026 based on a percentage of excess cash flow.

Risks

• The transaction is subject to customary closing conditions and the expiration of a ten-day notice period to shareholders.
• The transaction may result in a change of control of the Company depending on future events.
• The transaction includes certain reporting and operational covenants that may limit Li-Cycles flexibility.
• The transaction requires Li-Cycle to redeem a portion of the note starting in 2026 based on a percentage of excess cash flow.

Future Outlook

Li-Cycle is continuing to review its global recycling network and its go-forward strategy for the Rochester Hub, including analyzing potential end-product mix options and construction strategy. The Company believes the demand for critical battery materials continues to accelerate and Li-Cycle continues to work to position itself as a future leader in the production of critical battery materials through its sustainable, safe, and patented recycling technology.

Management Comments

• Ajay Kochhar, Li-Cycle co-founder and CEO, stated that the investment will improve the Companys liquidity position while it continues its ongoing comprehensive review process.
• Tim Johnston, Li-Cycle co-founder and Executive Chairman, stated that Li-Cycle is continuing to review its global recycling network and its go-forward strategy for the Rochester Hub.
• Kunal Sinha, Global Head of Recycling for Glencore, stated that Glencore is committed to bringing scalable and sustainable circularity into the supply chain of battery materials and that this investment will further support Li-Cycle.

Industry Context

This announcement highlights the growing importance of battery recycling and the strategic partnerships being formed to secure critical battery materials. Glencores investment further solidifies its position in the battery materials supply chain and demonstrates its confidence in Li-Cycles technology and business model.

Comparison to Industry Standards

• The terms of the convertible note, including the interest rate and conversion price, are within the range of similar transactions in the battery recycling and critical materials sector.
• The requirement for a portion of the note to be redeemed based on excess cash flow is a common feature in financings of this type.
• The granting of security interests in substantially all of Li-Cycles assets is a typical requirement for secured debt financings.
• The inclusion of Glencore nominees on the Board of Directors is a common practice in strategic investments of this nature.
• The use of a financial viability exception to avoid shareholder approval is a less common but permissible practice in situations where a company is facing financial difficulties.

Management Changes

Corporate Governance

Related Party Transactions

• The transaction is considered a related party transaction under MI 61-101.
• The Company is relying on financial hardship exemptions to avoid formal valuation and minority approval requirements.

Stakeholder Impact

• Shareholders will be notified of the Companys reliance on the financial viability exception to the NYSEs shareholder approval policy.
• Shareholders will not have the opportunity to vote on the issuance of the Note.
• The transaction may result in a change of control of the Company depending on future events.
• The transaction may dilute existing shareholders ownership.

Next Steps

• The Company will mail a letter to shareholders, not later than ten days prior to the anticipated closing of the issuance of the Note.
• The Company will close the transaction with Glencore on or about March 25, 2024.
• The Company will continue to review its global recycling network and its go-forward strategy for the Rochester Hub.

Key Dates

Keywords

Li-Cycle, Glencore, convertible note, strategic investment, battery recycling, lithium-ion, Rochester Hub, shareholder approval, financial viability, excess cash flow, warrants, board seats