Workhorse Group Inc.WKHS
Workhorse Group Inc. Debt Disclosure
DEBT
A reconciliation of the fair value of the convertible notes is as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Fair value of convertible notes, beginning of year | $ | 20,180,100 | $ | — | |||||||
| Fair value of convertible notes issued during year | 57,078,214 | 13,695,789 | |||||||||
| Repayment of 2026 convertible notes | (20,180,100) | — | |||||||||
Change in fair value of convertible notes1 | (2,621,234) | 6,484,311 | |||||||||
| Fair value of convertible notes exchanged for common stock | (43,965,188) | — | |||||||||
| Fair value of convertible notes, end of year | $ | 10,491,792 | $ | 20,180,100 | |||||||
1 The Company recognizes changes in fair value of convertible notes for Common Stock in in the Consolidated Statements of Operations.
Senior Secured Convertible Notes
2024 Securities Purchase Agreement
On March 15, 2024, we entered into the 2024 Securities Purchase Agreement with the Investor under which the Company agreed to issue and sell, in one or more registered public offerings by the Company directly to the Investor in multiple tranches over a period beginning on March 15, 2024, (i) 2024 Notes for up to an aggregate principal amount of $139.0 million that will be convertible into shares of the Company’s Common Stock and (ii) 2024 Warrants to purchase shares of Common Stock.
During the year ended December 31, 2024, the Company issued and sold to the Investor (i) 2024 Notes in the original principal amount of $39.0 million and (ii) 2024 Warrants to purchase up to 1.3 million shares of Common Stock pursuant to the 2024 Securities Purchase Agreement (following adjustment in connection with the Company’s 2024 Reverse Stock Split and 2025 Reverse Stock Split). As of December 31, 2024, $10.5 million fair value aggregate principal amount remained outstanding under the 2024 Notes, and no shares had been issued pursuant to the 2024 Warrants.
No 2024 Notes may be converted and no 2024 Warrants may be exercised to the extent that such conversion or exercise would cause the then holder of such 2024 Notes or 2024 Warrants to become the beneficial owner of more than 9.99% of the Company’s then outstanding Common Stock, after giving effect to such conversion or exercise.
2024 Notes
The 2024 Notes were issued with original issue discount of 12.5%, resulting in $34.1 million of net proceeds to the Company before fees and expenses for the year ended December 31, 2024. The 2024 Notes are or will be senior, secured obligations of the Company, ranking senior to all other unsecured indebtedness, subject to certain limitations and are unconditionally guaranteed by each of the Company’s subsidiaries, pursuant to the terms of a certain security agreement and subsidiary
guarantee. The 2024 Notes are issued pursuant to the Company’s Indenture (the “Base Indenture”) with U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and supplemental indentures thereto.
Each 2024 Notes bears interest at a rate of 9.0% per annum, payable in arrears on the first trading day of each calendar quarter, at the Company’s option, either in cash or in-kind by compounding and becoming additional principal. Upon the occurrence and during the continuance of an event of default, the interest rate will increase to 18.0% per annum. Unless earlier converted or redeemed, each 2024 Notes will mature on the one-year anniversary of the date hereof, subject to extension at the option of the holders in certain circumstances as provided therein.
All amounts due under any 2024 Notes are convertible at any time, in whole or in part, at the option of the holders into shares of Common Stock at a conversion price equal to the applicable Reference Price set forth in such 2024 Notes or (b) the greater of (x) the applicable Floor Price set forth in such 2024 Notes and (y) 87.5% of the volume weighted average price of the Common Stock during the ten trading days ending and including the trading day immediately preceding the delivery or deemed delivery of the applicable conversion notice, as elected by the converting holder. The Reference Price and Floor Price are subject to customary adjustments upon any stock split, stock dividend, stock combination, recapitalization or similar event. The Reference Price is also subject to full-ratchet adjustment in connection with a subsequent offering at a per share price less than the Reference Price then in effect. Subject to the rules and regulations of Nasdaq, we have the right, at any time, with the written consent of the Investor, to lower the reference price to any amount and for any period of time deemed appropriate by our board of directors. Upon the satisfaction of certain conditions, we may prepay any 2024 Notes upon 15 business days’ written notice by paying an amount equal to the greater of (i) the face value of the 2024 Notes at premium of 25% (or 75% premium, during the occurrence and continuance of an event of default, or in the event certain redemption conditions are not satisfied) and (ii) the equity value of the shares of Common Stock underlying the 2024 Notes. The equity value of our Common Stock underlying the 2024 Notes is calculated using the two greatest volume weighted average prices of our Common Stock during the period immediately preceding the date of such redemption and ending on the date we make the required payment.
The 2024 Notes contain customary affirmative and negative covenants, including certain limitations on debt, liens, restricted payments, asset transfers, changes in the business and transactions with affiliates. The 2024 Notes require the Company to maintain minimum liquidity on the last day of each fiscal quarter in the amount of either (i) $1.5 million if the sale leaseback transaction of Company’s manufacturing facility in Union City, IN (the “Sale Leaseback”) has not been consummated and (ii) $4.0 million if the Sale Leaseback has been consummated, subject to certain conditions. The 2024 Notes also contain customary events of default.
Under certain circumstances, including a change of control, the holder may cause us to redeem all or a portion of the then-outstanding amount of principal and interest on any 2024 Notes in cash at the greater of (i) the face value of the amount of 2024 Notes to be redeemed at a 25% premium or 10% premium with respect to amounts held in the lockbox account (or at a 75% premium, if certain redemption conditions are not satisfied or during the occurrence and continuance of an event of default), (ii) the equity value of our Common Stock underlying such amount of 2024 Notes to be redeemed and (iii) the equity value of the change of control consideration payable to the holder of our Common Stock underlying such 2024 Notes.
In addition, during an event of default, the holder may require us to redeem in cash all, or any portion, of any outstanding 2024 Notes at the greater of (i) the face value of our Common Stock underlying such 2024 Notes at a 75% premium and (ii) the equity value of our Common Stock underlying such 2024 Notes. In addition, during a bankruptcy event of default, we shall immediately redeem in cash all amounts due under the 2024 Notes at a 75% premium unless the holder of such 2024 Notes waives such right to receive payment. Further, upon the sale of certain assets, the holder may cause a redemption at a premium, including upon consummation of the Sale Leaseback if the redemption conditions are not satisfied. The 2024 Notes also provide for purchase and participation rights in the event of a dividend or other purchase right being granted to the holders of Common Stock.
As of December 31, 2024, $10.5 million fair value aggregate principal amount remained outstanding under the 2024 Notes, with an outstanding aggregate principal of $7.6 million. During the year ended December 31, 2024, the Investor converted $31.2 million of principal into Common Stock and we recorded a $2.9 million fair value net loss in Interest expense, net in the Consolidated Statements of Operations. Future fair value adjustments attributable to changes in credit risk will be recorded in Other comprehensive loss.
The December 31, 2024 estimated fair value of the 2024 Notes totaled $10.5 million. The fair value was computed using a Monte Carlo Simulation Model which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 fair value measurement. The unobservable inputs utilized for measuring the fair value of the 2024 Notes reflect our assumptions about the assumptions that market participants would use in valuing the 2024 Notes as of the issuance date and subsequent reporting period.
We determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
| Issuance Date | March 15, 2024 | |||||||
| Maturity Date | March 15, 2025 | |||||||
| Principal Balance as of the Valuation Date | $ | 9,000,000 | ||||||
| Risk-Free Rate (Annual) | 5.3 | % | ||||||
| Corporate Bond Yield | 15.8 | % | ||||||
| Volatility (Annual) | 85.0 | % | ||||||
| Issuance Date | May 10, 2024 | |||||||
| Maturity Date | May 10, 2025 | |||||||
| Principal Balance as of the Valuation Date | $ | 6,285,714 | ||||||
| Risk-Free Rate (Annual) | 5.3 | % | ||||||
| Corporate Bond Yield | 15.1 | % | ||||||
| Volatility (Annual) | 85.0 | % | ||||||
| Issuance Date | May 29, 2024 | |||||||
| Maturity Date | May 29, 2025 | |||||||
| Principal Balance as of the Valuation Date | $ | 7,000,000 | ||||||
| Risk-Free Rate (Annual) | 5.3 | % | ||||||
| Corporate Bond Yield | 16.4 | % | ||||||
| Volatility (Annual) | 85.0 | % | ||||||
| Issuance Date | July 18, 2024 | |||||||
| Maturity Date | July 18, 2025 | |||||||
| Principal Balance as of the Valuation Date | $ | 4,000,000 | ||||||
| Risk-Free Rate (Annual) | 4.8 | % | ||||||
| Corporate Bond Yield | 17.4 | % | ||||||
| Volatility (Annual) | 80.0 | % | ||||||
| Issuance Date | August 23, 2024 | |||||||
| Maturity Date | August 23, 2025 | |||||||
| Principal Balance as of the Valuation Date | $ | 2,600,000 | ||||||
| Risk-Free Rate (Annual) | 4.3 | % | ||||||
| Corporate Bond Yield | 17.8 | % | ||||||
| Volatility (Annual) | 90.0 | % | ||||||
Issuance Date | September 30, 2024 | |||||||
Maturity Date | September 30, 2025 | |||||||
Principal Balance as of the Valuation Date | $ | 3,400,000 | ||||||
Risk-Free Rate (Annual) | 3.9 | % | ||||||
Corporate Bond Yield | 15.9 | % | ||||||
Volatility (Annual) | 100.0 | % | ||||||
Issuance Date | October 16, 2024 | |||||||
Maturity Date | October 16, 2025 | |||||||
Principal Balance as of the Valuation Date | $ | 1,200,000 | ||||||
Risk-Free Rate (Annual) | 4.1 | % | ||||||
Corporate Bond Yield | 15.7 | % | ||||||
Volatility (Annual) | 100.0 | % | ||||||
Issuance Date | November 27, 2024 | |||||||
Maturity Date | November 27, 2025 | |||||||
Principal Balance as of the Valuation Date | $ | 2,000,000 | ||||||
Risk-Free Rate (Annual) | 4.2 | % | ||||||
Corporate Bond Yield | 15.2 | % | ||||||
Volatility (Annual) | 110.0 | % | ||||||
Issuance Date | December 16, 2024 | |||||||
Maturity Date | December 16, 2025 | |||||||
Principal Balance as of the Valuation Date | $ | 3,500,000 | ||||||
Risk-Free Rate (Annual) | 4.2 | % | ||||||
Corporate Bond Yield | 14.5 | % | ||||||
Volatility (Annual) | 110.0 | % | ||||||
As of December 31, 2024, the Company was in compliance with the debt terms and associated covenants under the 2024 Notes. As of March 21, 2025, $40.6 million in aggregate principal amount remained outstanding under the 2024 Notes. Of this amount, $27.4 million is considered restricted cash, resulting in a net outstanding aggregate principal amount of $13.2 million.
Warrants Exercisable
During the year ended December 31, 2024, the Company issued 2024 Warrants to purchase 1.3 million shares of Common Stock respectively at an exercise price ranging from $13.88 to $87.50 per share (following adjustment in connection with the Company’s 2024 Reverse Stock Split and 2025 Reverse Stock Split). As of December 31, 2024, no shares have been issued pursuant to the 2024 Warrants. In connection with the October 16, 2024 limited waiver to the 2024 Securities Purchase Agreement, the Investor waived its right to receive warrants in connection with future 2024 Notes issuances up to $14.8 million, which as of the date hereof has now been reached.
Under the 2024 Warrants, the Investor has a purchase right that allows the Investor to participate in transactions in which the Company issues or sells certain securities or other property to holders of Common Stock, allowing the Investor to acquire, on the terms and conditions applicable to such purchase rights, the aggregate purchase rights which the Investor would have been able to acquire if the Investor held the number of shares of Common Stock acquirable upon exercise of the 2024 Warrants.
In the event of a Fundamental Transaction (as defined in the 2024 Warrants) that is not a change of control or corporate event as described in the 2024 Warrants, the surviving entity would be required to assume the Company’s obligations under the 2024 Warrants. In addition, if the Company engages in certain transactions that result in the holders of the Common Stock receiving consideration, a holder of the 2024 Warrants will have the option to either (i) exercise the 2024 Warrants prior to the consummation of such transaction and receive the consideration to be issued or distributed in connection with such transaction or (ii) cause the Company to repurchase the 2024 Warrants for its then Black Scholes Value (as defined in the 2024 Warrants).
As of December 31, 2024, the estimated fair value of the 2024 Warrants as of each respective issuance date totaled $5.8 million. During the year ended December 31, 2024, we recorded a $5.8 million net fair value loss in Fair value loss on warrants in the Consolidated Statement of Operations related to the 2024 Warrants. The fair value of the 2024 Warrants was measured using the Black Scholes model approach.
Significant inputs to the model at each respective issuance date and December 31, 2024 were as follows:
| Valuation Assumptions | December 31, 2024 | Initial Recognition on March 15, 2024 | |||||||||
| Fair Value | $ | 510,981 | $ | 4,749,754 | |||||||
| Stock Price | $ | 0.70 | $ | 5.32 | |||||||
| Strike Price | $ | 7.00 | $ | 7.00 | |||||||
| Volatility (annual) | 75.0% | 45.0% | |||||||||
| Risk-Free Rate | 4.5% | 4.2% | |||||||||
| Estimated time to expiration (years) | 9.21 | 10 | |||||||||
| Dividend Yield | 0.0% | 0.0% | |||||||||
| Valuation Assumptions | December 31, 2024 | Initial Recognition on May 10, 2024 | |||||||||
| Fair Value | $ | 634,126 | $ | 3,706,121 | |||||||
| Stock Price | $ | 0.70 | $ | 3.60 | |||||||
| Strike Price | $ | 5.89 | $ | 5.89 | |||||||
| Volatility (annual) | 75.0% | 50.0% | |||||||||
| Risk-Free Rate | 4.5% | 4.4% | |||||||||
| Estimated time to expiration (years) | 9.36 | 10 | |||||||||
| Dividend Yield | 0.0% | 0.0% | |||||||||
| Valuation Assumptions | December 31, 2024 | Initial Recognition on May 29, 2024 | |||||||||
| Fair Value | $ | 710,084 | $ | 4,099,389 | |||||||
| Stock Price | $ | 0.70 | $ | 3.80 | |||||||
| Strike Price | $ | 5.89 | $ | 5.89 | |||||||
| Volatility (annual) | 75.0% | 45.0% | |||||||||
| Risk-Free Rate | 4.5% | 4.5% | |||||||||
| Estimated time to expiration (years) | 9.41 | 10 | |||||||||
| Dividend Yield | 0.0% | 0.0% | |||||||||
| Valuation Assumptions | December 31, 2024 | Initial Recognition on July 18, 2024 | |||||||||
| Fair Value | $ | 969,940 | $ | 2,901,545 | |||||||
| Stock Price | $ | 0.70 | $ | 1.89 | |||||||
| Strike Price | $ | 2.93 | $ | 2.93 | |||||||
| Volatility (annual) | 65.0 | % | 50.0 | % | |||||||
| Risk-Free Rate | 4.5 | % | 4.1 | % | |||||||
| Estimated time to expiration (years) | 9.55 | 10 | |||||||||
| Dividend Yield | 0 | 0 | |||||||||
| Valuation Assumptions | December 31, 2024 | Initial Recognition on August 24, 2024 | |||||||||
| Fair Value | $ | 1,120,903 | $ | 1,200,626 | |||||||
| Stock Price | $ | 0.70 | $ | 0.78 | |||||||
| Strike Price | $ | 1.11 | $ | 1.11 | |||||||
| Volatility (annual) | 50.0 | % | 45.0 | % | |||||||
| Risk-Free Rate | 4.5 | % | 3.7 | % | |||||||
| Estimated time to expiration (years) | 9.65 | 10 | |||||||||
| Dividend Yield | 0 | 0 | |||||||||
| Valuation Assumptions | December 31, 2024 | Initial Recognition on September 30, 2024 | |||||||||
| Fair Value | $ | 1,832,626 | $ | 2,252,786 | |||||||
| Stock Price | $ | 0.70 | $ | 0.87 | |||||||
| Strike Price | $ | 1.27 | $ | 1.27 | |||||||
| Volatility (annual) | 55.0 | % | 50.0 | % | |||||||
| Risk-Free Rate | 4.5 | % | 3.7 | % | |||||||
| Estimated time to expiration (years) | 9.75 | 10 | |||||||||
| Dividend Yield | 0 | 0 | |||||||||
The Company determines the accounting classification of warrants it issues as either liability or equity classified by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480”), then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815”). In order for a warrant to be classified in stockholders’ equity (deficit), the warrant must be (i) indexed to the Company’s equity and (ii) meet the conditions for equity classification.
If a warrant does not meet the conditions for stockholders’ equity (deficit) classification, it is carried in the Consolidated Balance Sheets as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in other non-operating losses (gains) in the Consolidated Statements of Operations. If a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders’ equity (deficit) in the Consolidated Balance Sheets, and the amount initially recorded is not subsequently remeasured at fair value.
2023 Securities Purchase Agreement (Green Senior Convertible Notes Due 2026)
On December 12, 2023, the Company entered into a securities purchase agreement (the “2023 Securities Purchase Agreement”) under which the Company issued, pursuant to the Base Indenture and a First Supplemental Indenture between the Company and the Trustee party thereto, $20.0 million principal amount of Green Senior Convertible Notes (the “2026 Notes”) due October 1, 2026. The 2026 Notes were a senior secured obligation of the Company and ranked senior to all unsecured debt of the Company. The 2026 Notes were guaranteed by the Company and its current subsidiaries and were secured by substantially all the assets of the Company and its subsidiaries. The 2026 Notes were issued with an original issue discount of 12.5% or $2.5 million.
The Company paid fees in connection with the issuance of the 2026 Notes of $0.6 million, resulting in net proceeds of $16.9 million. We elected to account for the 2026 Notes using the fair value option under GAAP. All direct costs related to the issuance of our convertible notes were recognized in Interest expense, net in the Consolidated Statements of Operations.
Upon issuance on December 12, 2023, the estimated fair value of the 2026 Notes was $13.7 million, determined using a Binomial Lattice Model incorporating significant unobservable inputs, representing a Level 3 fair value measurement. These inputs reflected assumptions that market participants would use in valuing the notes at issuance and during subsequent reporting periods.
The following key inputs were used in the fair value determination at issuance:
Issuance Date | December 12, 2023 | |||||||
Maturity Date | October 1, 2026 | |||||||
Principal Balance as of the Valuation Date | $ | 20,000,000 | ||||||
Risk-Free Rate (Annual) | 5.3 | % | ||||||
Corporate Bond Yield | 10.5 | % | ||||||
Volatility (Annual) | 80.0 | % | ||||||
During the first quarter of 2024, the Company repaid the 2026 Notes in full, the 2026 Notes are no longer subject to fair value measurement as of the current reporting period.
Warrants Under the 2023 Securities Purchase Agreement
On December 12, 2023, as part of the 2023 Securities Purchase Agreement, the Company issued warrants (the “2023 Warrants”) to purchase 25.6 million shares of Common Stock at an exercise price of $8.98 per share.
The fair value of the components of the 2023 Securities Purchase Agreement was allocated between the 2026 Notes and the 2023 Warrants. As of December 31, 2023, the fair value of the 2023 Warrants was $5.6 million. During the six months ended June 30, 2024, in connection with a First Amendment to Green Senior Secured Convertible Notes Due 2026, the Company entered into an agreement to exchange the 2023 Warrants for a total of 0.4 million shares of Common Stock for a total value of $2.8 million, whereupon the 2023 Warrant were cancelled. The Company recorded a gain in the quarter ended March 31, 2024 of $2.7 million in connection with this exchange in Interest income (expense), net in the Consolidated Statements of Operations related to the 2023 Warrants.
As of December 12, 2023 (initial recognition) and December 31, 2023, the fair value of the 2026 Warrants was $3.8 million and $5.6 million, respectively. The fair value was determined using the Black-Scholes model, incorporating significant assumptions such as stock price, strike price, volatility, and risk-free rate.
During the year ended December 31, 2023, we recorded a $1.8 million fair value adjustment in Interest expense, net in the Statements of Operations related to the 2026 Notes.
The valuation assumptions used in the Black-Scholes model as of December 12, 2023 (initial recognition) and December 31, 2023, are as follows:
| Valuation Assumptions | December 31, 2023 | Initial Recognition on December 12, 2023 | |||||||||
| Stock Price | $ | 0.36 | $ | 0.37 | |||||||
| Strike Price | $ | 0.45 | $ | 0.45 | |||||||
| Volatility (annual) | 98.0 | % | 98.0 | % | |||||||
| Risk-Free Rate | 5.3 | % | 5.3 | % | |||||||
| Estimated time to expiration (years) | 3.0 | 3.0 | |||||||||
| Dividend Yield | — | % | — | % | |||||||
During the current year, the 2026 Warrants were fully settled and terminated, and as a result, they are no longer outstanding as of the reporting date. No further fair value measurement is required.
Floorplan Line of Credit
On August 10, 2023, we entered into a Floorplan and Security Agreement (the “Floorplan LOC”) with Mitsubishi HC CapitalAmerica, Inc. under which we obtained a revolving floorplan line of credit with a maximum borrowing limit of $5.0 million.
The intended use of the Floorplan LOC was to finance the acquisition of inventory used in production of our W4 CC and W750 vehicles. The terms of the Floorplan LOC included interest charged on the outstanding borrowings and other fees and covenants. Interest was to be charged at a variable rate based on a reference interest rate, such as the Secured Overnight
Financing Rate (“”), plus 4.86%.
In connection with the 2024 Securities Purchase Agreement described above, we terminated the Floorplan and Security Agreement. During the year ended December 31, 2023, we did not draw on or incur any charges related to the Floorplan LOC.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 31, 2025 | Showing above |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 14, 2018 | |
| 2016 | Mar 14, 2017 | |
| 2015 | Mar 25, 2016 | |
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.