8-K: Li-Cycle Secures Amended Note Terms with Glencore, Conversion Price Adjusted

Li-Cycle's convertible note with Glencore was automatically amended, resulting in a significant conversion price adjustment and increased Glencore's ownership stake.

Summary

• Li-Cycle Holdings Corp. has amended its convertible note agreement with Glencore, triggered by a loan arrangement with the U.S. Department of Energy.
• The amendment automatically adjusted the conversion price of the First A&R Glencore Convertible Note to $3.03 per share.
• This adjustment was based on the lesser of a 30-day VWAP plus a 25% premium or $9.95 per share.
• As a result of the conversion price adjustment, Glencore's beneficial ownership in Li-Cycle increased to approximately 66% on a pro forma fully-diluted basis.
• The amendment also included a Note Guaranty, with Li-Cycle Corp., Li-Cycle Americas Corp., Li-Cycle Europe AG, and Li-Cycle Germany GmbH guaranteeing the obligations of the company.
• These Note Guarantors granted first priority security interests in their assets to Glencore, subject to customary exceptions.
• A pari passu intercreditor agreement was also entered into, acknowledging Glencore's role as Collateral Agent.
• Li-Cycle's U.S. subsidiaries are not required to provide security or guarantees until January 15, 2025, or a later date agreed upon by Glencore.

Sentiment

Score: 4

Explanation: The document details a significant change in ownership structure and security arrangements, which, while providing immediate financial benefits, could be viewed negatively by existing shareholders due to potential dilution and reduced financial flexibility. The sentiment is therefore cautiously negative.

Positives

• The loan arrangement with the U.S. Department of Energy triggered a beneficial amendment to the convertible note.
• The company has secured a guarantee from key subsidiaries, strengthening the security of the note.
• The company has clarified the security obligations of its U.S. subsidiaries, providing a temporary exemption.

Negatives

• The conversion price adjustment significantly increased Glencore's ownership stake, potentially diluting existing shareholders.
• The company has granted first priority security interests in its assets, which could limit future financial flexibility.

Risks

• The increased ownership by Glencore could lead to a loss of control for existing shareholders.
• The first priority security interests granted to Glencore could limit the company's ability to secure future financing.
• The company's U.S. subsidiaries may be required to provide security or guarantees after January 15, 2025, which could impact their operations.

Future Outlook

The document does not provide specific forward-looking statements or guidance beyond the details of the note amendment and security arrangements.

Management Comments

• The document includes a signature from Ajay Kochhar, President & CEO and Director, indicating his authorization of the report.

Industry Context

This announcement reflects a trend of companies seeking alternative financing options, such as convertible notes, and strategic partnerships with key investors like Glencore. The involvement of the U.S. Department of Energy also highlights the growing importance of government support for companies in the clean energy and battery recycling sectors.

Comparison to Industry Standards

• The conversion price adjustment and the resulting increase in Glencore's ownership are significant and may be viewed as a sign of financial distress or a strategic move to consolidate control.
• The use of convertible notes is a common financing method, but the specific terms and the resulting ownership changes should be compared to similar transactions in the industry.
• The security arrangements, including the first priority liens and the guarantees from key subsidiaries, are typical for secured debt financing but should be assessed in the context of Li-Cycle's overall financial health and risk profile.
• The temporary exemption for U.S. subsidiaries from providing security is a notable deviation from standard practice and may indicate specific considerations related to the company's U.S. operations.

Related Party Transactions

• The document details transactions between Li-Cycle and Glencore, which are related parties.

Stakeholder Impact

• Shareholders may experience dilution due to the increased ownership stake of Glencore.
• Creditors may view the first priority security interests granted to Glencore as a positive sign of security.
• Employees may be indirectly affected by any changes in the company's strategy or operations resulting from the note amendment.

Next Steps

• Li-Cycle will need to manage the increased ownership stake of Glencore and its potential impact on the company's strategy and operations.
• The company will need to monitor the security obligations of its U.S. subsidiaries and prepare for potential changes after January 15, 2025.
• Li-Cycle will need to ensure compliance with the terms of the amended note agreement and the intercreditor agreement.

Key Dates

Keywords

convertible note, Glencore, conversion price, security interest, note guaranty, ownership, financing, Li-Cycle, intercreditor agreement, collateral