8-K: Worksport Secures $6 Million Revolving Credit Facility to Refinance Mortgage and Support Working Capital

Worksport Ltd. has entered into a $6 million revolving credit facility agreement with Amerisource Funding, using a portion to refinance its real estate mortgage and support accounts receivable financing.

Summary

• Worksport Ltd. secured a $6 million revolving credit facility with Amerisource Funding on July 19, 2024.
• The company drew down approximately $5.52 million initially, with $788,000 held as an interest reserve.
• About $4.73 million of the drawn funds were used to refinance the company's mortgage on its West Seneca, New York property.
• Approximately $330,000 was used for accounts receivable, leaving about $937,000 available for future accounts receivable financing.
• The credit facility includes sub-limits for accounts receivable and real estate, with advance rates of up to 80% and 60%, respectively.
• The interest rate is the lesser of the prime rate plus 3% or the maximum rate allowed by law, with a floor of 6%.
• The agreement includes an initial commitment fee of 1.75% and an annual fee of 1%, plus a non-usage fee of 0.25% quarterly.
• The facility is secured by a lien on substantially all of Worksport's assets, including accounts receivable and real property.
• The agreement has a 24-month term, with an option for Worksport to terminate with 60 days' notice before each maturity date.

Sentiment

Score: 7

Explanation: The document outlines a standard financing agreement, which is generally positive for the company's financial flexibility. However, the debt obligations and fees associated with the facility temper the overall sentiment.

Positives

• The revolving credit facility provides Worksport with access to $6 million in capital.
• Refinancing the mortgage improves the company's financial structure.
• The facility provides flexibility for both real estate and accounts receivable financing.
• The interest rate is capped at the lesser of prime plus 3% or the maximum legal rate, with a 6% floor, which could be beneficial if rates rise.
• The agreement allows for potential adjustments to accommodate the company's growth in working capital needs.

Negatives

• The company is subject to interest payments on the outstanding balance.
• The agreement includes commitment and non-usage fees, which add to the cost of borrowing.
• The company has granted a security interest in substantially all of its assets, which could be a risk in case of default.
• The agreement includes a reserve account, which reduces the amount of immediately available funds.
• The company is required to submit daily sales ledgers and assign invoices to Amerisource.

Risks

• The company is obligated to make monthly interest payments, which could strain cash flow.
• The security interest on substantially all assets could pose a risk if the company defaults.
• The agreement includes a non-usage fee, which could be costly if the company does not fully utilize the credit facility.
• The interest rate is variable and could increase if the prime rate rises.
• The company is subject to various fees, including commitment and non-usage fees, which increase the cost of borrowing.

Future Outlook

The credit facility is intended to support the company's working capital needs and growth, with potential adjustments to the facility to accommodate future needs.

Management Comments

• There are no direct quotes from management in this document.

Industry Context

This type of financing is common for companies seeking to manage working capital and refinance existing debt. The use of a revolving credit facility allows for flexibility in accessing funds as needed.

Comparison to Industry Standards

• Revolving credit facilities are a standard financing tool for companies across various industries, particularly those with fluctuating working capital needs.
• The advance rates of 80% for accounts receivable and 60% for real estate are within typical ranges for asset-based lending.
• The interest rate structure, based on prime plus a margin, is also common in such agreements.
• Companies like Hilco and Gordon Brothers also provide similar asset based lending facilities.
• The fees associated with the facility, such as commitment and non-usage fees, are standard in the industry.

Stakeholder Impact

• Shareholders may view the financing positively as it provides capital for operations and growth.
• Employees may benefit from the company's improved financial stability.
• Customers and suppliers may see the company as a more reliable partner due to its stronger financial position.
• Creditors may be impacted by the new debt obligations and security interests.

Next Steps

• Worksport will submit daily sales ledgers to Amerisource.
• The company will make monthly interest payments.
• The company will manage its accounts receivable and real estate financing within the terms of the agreement.
• The company will monitor its compliance with the covenants and conditions of the agreement.

Key Dates

Keywords

revolving credit facility, financing, mortgage, accounts receivable, Amerisource Funding, working capital, loan, interest rate, security interest, promissory note