MONTREAL - The Lion Electric Company (NYSE: LEV) (TSX: LEV), a manufacturer of all-electric urban vehicles, faces financial challenges as it announced the expiration of its covenant relief period and defaults under its senior debt instruments. According to InvestingPro data, the company carries a substantial debt burden of $388 million and maintains a concerning financial health score of 1.53, labeled as 'WEAK'. The company, known for producing zero-emission vehicles such as electric school buses, disclosed the maturation of its loan agreement with Finalta Capital Fund, L.P. and Caisse de dépôt et placement du Quebec, resulting in a default due to the absence of further amendments or waivers.
The expiry of the covenant relief period and the re-introduction of financial covenants under its Revolving Credit Agreement, alongside the matured Finalta CDPQ Loan Agreement as of December 16, 2024, has placed Lion Electric in a default position. This development enables the company's lenders to demand immediate repayment of borrowed amounts. The company's financial strain is evident in its negative EBITDA of -$86.6 million and concerning gross profit margins of -29%. For comprehensive analysis of Lion Electric's financial health and 19 additional key insights, consider accessing the full research report on InvestingPro.
In response to the situation, Lion Electric is currently negotiating with senior lenders to secure additional funds through a new debtor-in-possession credit facility. The company also expects to seek creditor protection under the Companies' Creditors Arrangement Act (CCAA) to restructure its business and financial affairs. This process will include a formal sales and investment solicitation process for the company's business or assets.
Trading of Lion Electric's common shares and other listed securities has been halted on both the Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). It is anticipated that trading will remain suspended pending a review by these exchanges regarding Lion's suitability for continued listing.
This news is based on a press release statement and follows a series of forward-looking statements made by the company, which involve risks and uncertainties. These statements should be viewed with caution, as they are subject to various factors that may or may not occur in the future. Lion Electric had previously indicated material uncertainty that may cast significant doubt on the company's ability to continue as a going concern in its interim MD&A for the three and nine months ended September 30, 2024.
In other recent news, Lion Electric has made significant strides to address its financial commitments. The company has entered into a definitive agreement to sell its Mirabel, Québec innovation center to Aéroport de Montreal for C$50 million, a move aimed at partially repaying its senior secured non-convertible debentures. This transaction, expected to close by the end of 2024, will contribute to reducing Lion Electric's long-term debt.
Furthermore, the company's Q3 2024 results highlighted cost-saving measures and operational streamlining initiatives, including headcount reductions and a shift to a batch-size manufacturing approach in its truck business. These measures are expected to result in annual cost savings of around $65 million.
In the analyst sphere, BMO Capital Markets revised Lion Electric's stock price target to $0.60, down from $0.80, maintaining a Market Perform rating. This revision comes in light of a year-over-year decline in volumes and ongoing profitability issues. Despite these challenges, Lion Electric's management team remains optimistic about the company's future. These are recent developments in Lion Electric's strategic efforts to improve its financial stability.
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