Li-Cycle Announces $75 Million Strategic Investment from Glencore
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Insights
The strategic partnership and financial engagement between Li-Cycle Holdings Corp. and Glencore plc highlight a significant investment in the lithium-ion battery recycling sector. The issuance of a senior secured convertible note worth $75 million by Li-Cycle to Glencore underscores the confidence in Li-Cycle's patented Spoke & Hub model. This transaction not only strengthens the liquidity position of Li-Cycle but also supports the company's expansion plans, particularly the development of the Rochester Hub.
Considering the shift towards electric vehicles and the corresponding demand for lithium-ion batteries, this partnership is poised to capitalize on the growing need for sustainable battery recycling solutions. The investment terms, including the SOFR-based interest rates, conversion options and maturity period, reflect a structured approach to align the interests of both parties. The extended maturity and market-based re-pricing of the convertible note suggest a long-term commitment from Glencore, potentially reducing the short-term financial pressure on Li-Cycle.
Investors should note the potential dilution effect due to the conversion feature of the note, which could impact the value of existing shares. However, the partnership's focus on circularity in battery materials could position Li-Cycle favorably in the market, potentially offsetting dilution concerns with growth prospects.
The lithium-ion battery recycling market is gaining traction due to the critical need for sustainable practices in the battery supply chain. Li-Cycle's patented technology and its strategic partnership with Glencore, a resource giant, position the company at the forefront of this emerging industry. This partnership is indicative of a trend where traditional resource companies are increasingly investing in recycling technologies to meet the demand for battery materials sustainably.
From a market perspective, the investment could signal confidence in Li-Cycle's business model and future growth potential. The move aligns with global efforts to reduce the environmental impact of batteries and recover valuable materials. The demand for recycled battery materials is expected to rise, driven by regulatory pressures and the automotive industry's shift towards electric vehicles. Li-Cycle's ability to secure such a substantial investment from a reputable entity like Glencore could enhance its market position and attract further interest from investors and customers alike.
The agreement between Li-Cycle and Glencore involves complex legal structuring, including the issuance of senior secured convertible notes and accompanying security interests in assets. The granting of registration rights and the addition of Glencore nominees to Li-Cycle's Board of Directors are strategic moves that could influence the company's governance and future direction.
Legally, the transaction adheres to securities laws, including compliance with NYSE regulations, which is critical for maintaining corporate transparency and protecting shareholder interests. The lock-up period and standstill agreement serve as safeguards against potential market manipulation or hostile takeovers. These legal mechanisms are designed to provide stability and predictability for both Li-Cycle and its investors during the partnership's tenure.
It is important for stakeholders to understand the legal implications of such agreements, as they can have significant impacts on the company's operations and strategic decision-making processes. The transfer restrictions and board nomination rights are particularly noteworthy, as they reflect Glencore's vested interest in Li-Cycle's success and its influence on the company's corporate governance.
Builds upon existing long-term partnership and further demonstrates Glencore’s endorsement of Li-Cycle’s Spoke & Hub model, patented recycling technology, and development plans for the Rochester Hub, as part of Glencore’s ambition to bring more circularity to the battery materials space
Agreement amends existing Glencore convertible note to provide for extended maturity, market-based re-pricing and granting of security interest in two future tranches
Ajay Kochhar, Li-Cycle co-founder and CEO, commented: “We are pleased to secure an additional
Tim Johnston, Li-Cycle co-founder and Executive Chairman, commented: “As part of our previously announced comprehensive review, Li-Cycle is continuing to review our global recycling network. We are also reviewing our go-forward strategy for the paused Rochester Hub, including analyzing potential end-product mix options and construction strategy. We believe 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 our sustainable, safe, and patented recycling technology.”
Kunal Sinha, Global Head of Recycling for Glencore, and Non-Executive Director of Li-Cycle’s Board of Directors, commented: “Glencore is committed to bringing scalable and sustainable circularity into the supply chain of battery materials. Our original investment in Li-Cycle, alongside key commercial agreements, formed part of this strategy. Today, we are pleased to further support Li-Cycle through this additional
Following the announcement by the Company in October 2023 in respect of the Rochester Hub, the Company formed a Special Committee (the “SC”) composed solely of independent and disinterested members of the Board (and which excluded Glencore’s Board representative). The SC engaged Moelis & Company LLC, a leading global investment bank (“Moelis”), as its financial advisor and placement agent. The SC, with the assistance of Moelis, conducted a robust process to review and evaluate potential financial and strategic alternatives available to the Company. After a careful review and assessment of the alternatives identified by the SC through this process, the Company entered into the agreement with Glencore.
Li-Cycle management expects to provide its full-year 2023 financial and operating results on or before March 15, 2024 as part of the filing of its Annual Report on Form 10-K for the year ended December 31, 2023.
Long-Term Global Partnership
As previously announced, Glencore has designated Li-Cycle as one of its preferred recycling partners, and Li-Cycle and Glencore entered into a strategic commercial partnership aimed to create an integrated platform to supply a global customer base with both primary and recycled critical battery materials. As part of the partnership, Glencore previously made a
Glencore is a battery feedstock partner for Li-Cycle’s Spoke facilities, as well as a future supplier of both black mass and key reagents for Li-Cycle’s future Hub facilities. Glencore complements the Company’s existing partners through off-take and marketing of Li-Cycle’s end products and certain by-products produced and expected to be produced at certain of the Company’s Spokes and Hubs.
Glencore Financial Investment Terms
The Glencore investment will result in Glencore purchasing from the Company a senior secured convertible note in the aggregate principal amount of
The Note is redeemable at the option of Li-Cycle at a redemption price equal to
In addition, Li-Cycle and Glencore have agreed to amend and restate the terms of the Existing Note, in two tranches, each of which will include new terms that come into effect upon the occurrence of certain future events (the Existing Note, including outstanding PIK notes, as so amended and restated in two tranches, the “A&R Notes”). The first A&R Note will include modifications to the terms of the Existing Note that take effect on the date (the “First Modification Date”) that is the earliest to occur of (a) the date that is one month after the effectiveness and initial funding, if any, of a project loan financing for the Rochester Hub, and (b) December 31, 2024. The second A&R Note will include modifications to the terms of the Existing Note that take effect on the date (the “Second Modification Date”) that is the earliest to occur of (a) the first commercial production from the Rochester Hub, (b) construction costs exceeding the construction budget set forth in the project loan financing, and (c) June 1, 2026. At each Modification Date the following terms of each A&R Note, which mirror the Note, will take effect: the maturity will be amended to be five (5) years from the applicable Modification Date, the interest rate will be amended to match the interest rate applicable to the Note, mandatory redemption will be required (including, from the First Modification Date and the Second Modification Date, the ECF Amount in a pro rata amount across the A&R Notes (to the extent modified) and the Note), and the Company will provide guarantees and security for the A&R Notes consistent with the Note. In addition, at each Modification Date the conversion price for the applicable tranche will be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to the applicable Modification Date plus a
Glencore is permitted to transfer the Note, the Redemption Warrants and any common shares issued upon conversion of the Note or exercise of any of the Redemption Warrants subject to certain transfer restrictions including compliance with
Glencore has also committed to not acquire beneficial ownership of additional common shares of the Company in excess of
The issuance and sale of the Note to Glencore is subject to customary closing conditions and the expiration of the ten-day period for required notice to shareholders informing them of the Company’s reliance on the New York Stock Exchange (“NYSE”) financial viability exception to the NYSE’s shareholder approval policy discussed below, and is expected to close on or about March 25, 2024. Additional information regarding this announcement may be found in a Form 8-K that will be filed with the
In addition, Li-Cycle entered into an amendment, effective as of March 11, 2024 (“Amendment No. 1”), to its limited duration shareholder rights plan entered into on October 31, 2023 (the “Rights Agreement”), to amend the definition of “Acquiring Person” to exempt Glencore Canada Corporation (“Glencore Canada”) or its affiliates and associates (such persons together “Glencore Canada and GC Affiliates”) from the definition of Acquiring Person and to permit Glencore Canada and GC Affiliates’ beneficial ownership in certain circumstances that would otherwise be in excess of the
Amendment No. 1 provides that Glencore Canada and GC Affiliates will not be deemed an “Acquiring Person”, either individually or together, solely by virtue of, or as a result of, (a) Glencore Canada and GC Affiliates’ beneficial ownership of the common shares of Li-Cycle issuable upon conversion of the Existing Note, as may be amended and restated from time to time, including such common shares of Li-Cycle issuable pursuant to the Company’s right to elect to pay interest-in-kind pursuant to the terms of the Existing Note or the issuance to Glencore Canada and GC Affiliates and the exercise of any warrants upon redemption of the Existing Note in accordance with its terms; (b) the valid and binding approval, execution, and delivery of the Note Purchase Agreement and the issuance of the Note; (c) the issuance to Glencore Canada and GC Affiliates of the common shares of Li-Cycle upon conversion of the Note, in whole or part, including any common shares of Li-Cycle issued in connection with any interest the Company elects to pay in-kind; (d) the issuance to Glencore Canada and GC Affiliates and the subsequent exercise of Redemption Warrants; and (e) the performance or consummation of any of the other transactions contemplated by the Note Purchase Agreement, the note purchase agreement for the Existing Note, the Existing Note or the Note (the foregoing actions, the “Permitted Events”); provided however, that notwithstanding the foregoing, Glencore Canada and GC Affiliates shall be deemed an Acquiring Person if Glencore Canada and GC Affiliates become the beneficial owner of such number of additional common shares of Li-Cycle representing in excess of
The definition of “Acquiring Person” is further amended to provide an exemption for any transferee of Glencore Canada and GC Affiliates, and any transferee of any such transferee, that, in any such case, has acquired beneficial ownership of common shares of Li-Cycle in accordance with the transfer restrictions set forth in the note purchase agreement for the Existing Note or the Note Purchase Agreement, as applicable, including beneficial ownership acquired as a result of the occurrence of one or more Permitted Events following such transfer and certain other de minimis exceptions, without triggering the exercisability of the rights.
In connection with the entry into the Glencore investment, the Company has obtained the consent of Wood River Capital, LLC (“Koch”), to the Glencore investment in respect of the existing Convertible Note, dated as of September 29, 2021, issued to Koch (the “Koch Note”), in exchange for the Company agreeing to amend the Koch Note, as of the closing of the Glencore investment, to include penalty interest upon an event of default consistent with the penalty interest provision of the Note and to remove the floor and ceiling from the definition of SOFR in the Koch Note.
New York Stock Exchange Exception from Shareholder Approval
Although the issuance of the Note would generally require approval of Li-Cycle’s shareholders under the shareholder approval policy of the NYSE prior to the issuance of the common shares contemplated by the Note, the Company requested and received confirmation from the NYSE on March 1, 2024 that the NYSE will not object to the Company’s reliance on the financial viability exception to the NYSE’s shareholder approval policy pursuant to NYSE Listed Company Manual Paragraph 312.05.
Prior to entry into the agreement with Glencore, the audit committee of the Board of Directors of Li-Cycle (the “Audit Committee”), composed solely of independent and disinterested members of the Board, determined that the delay associated with obtaining a shareholder vote prior to consummation of the issuance of the Note would seriously jeopardize the financial viability of Li-Cycle, and, on that basis, the Audit Committee expressly approved Li-Cycle’s reliance on the financial viability exception to the requirement to seek shareholder approval.
In accordance with NYSE requirements, the Company will mail a letter to shareholders, not later than ten days prior to the anticipated closing of the issuance of the Note, notifying them of its agreement with Glencore to, among other things, issue the Note and amend and restate the Existing Note and its intention to issue common shares upon conversion of the Note, the A&R Notes and, if applicable, the Redemption Warrants, without obtaining approval from its shareholders (the “Shareholder Letter”).
Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions
The foregoing proposed transactions (the “Transactions”) between the Company and Glencore are considered “related party transactions” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”) of the Canadian Securities Administrators. In its consideration and approval of the Transactions, the independent members of the Board of Directors of Li-Cycle determined that the Transactions will be exempt from the formal valuation and minority approval requirements of MI 61-101 on the basis of the “financial hardship” exemptions in Sections 5.5(g) and 5.7(e) of MI 61-101. The Company meets the requirements set out in Sections 5.5(g) and 5.7(e) of MI 61-101 based on the independent members of the Board of Directors of Li-Cycle, acting in good faith, having unanimously determined that Li-Cycle is in serious financial difficulty, that the Transactions are designed to improve Li-Cycle’s financial position, and that the terms of the Transactions are reasonable in the circumstances of Li-Cycle.
About Li-Cycle Holdings Corp.
Li-Cycle (NYSE: LICY) is a leading global lithium-ion battery resource recovery company. Established in 2016, and with major customers and partners around the world, Li-Cycle’s mission is to recover critical battery-grade materials to create a domestic closed-loop battery supply chain for a clean energy future. The Company leverages its innovative, sustainable and patent-protected Spoke & Hub Technologies™ to recycle all different types of lithium-ion batteries. At our Spokes, or pre-processing facilities, we recycle battery manufacturing scrap and end-of-life batteries to produce black mass, a powder-like substance which contains a number of valuable metals, including lithium, nickel and cobalt. At our future Hubs, or post-processing facilities, we plan to process black mass to produce critical battery-grade materials, including lithium carbonate, for the lithium-ion battery supply chain. For more information, visit https://li-cycle.com/.
Forward-Looking Statements
Certain statements contained in this press release may be considered “forward-looking statements” within the meaning of the
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and are not guarantees of future performance. Li-Cycle believes that these risks and uncertainties include, but are not limited to, the following: Li-Cycle’s ability to continue as a going concern for the twelve-month period after the date of filing of its 2023 annual report on Form 10-K; Li-Cycle’s inability to develop the Rochester Hub, and the risk that those capital projects will not meet expectations with respect to their productivity or the specifications of their end products; Li-Cycle’s engagement in strategic transactions, including acquisitions, that could disrupt its business, cause dilution to its shareholders, reduce its financial resources, result in incurrence of debt, or prove not to be successful; additional funds required to meet Li-Cycle’s capital requirements in the future not being available to Li-Cycle on commercially reasonable terms or at all when it needs them. These and other risks and uncertainties related to Li-Cycle’s business are described in greater detail in the section entitled “Risk Factors” in its Annual Report on Form 20-F filed with the
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Investor Relations
Nahla A. Azmy
Sheldon D’souza
investors@li-cycle.com
Media
Louie Diaz
media@li-cycle.com
Source: Li-Cycle Holdings Corp.
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