By Abhijith Ganapavaram
(Reuters) -UK-based Vertical Aerospace and Mudrick Capital have signed a non-binding term sheet under which the investor will convert half of its outstanding convertible debt to equity and extend the repayment date on the remainder to December 2028, the air-taxi maker said.
Mudrick will commit $25 million in upfront funding for Vertical's next equity round and an additional $25 million backstop, which can be reduced by amounts raised from third parties.
The company's U.S.-listed shares surged 18% in morning trading.
If finalized, the agreement will extend Vertical's cash runway into the fourth quarter of next year. The company had previously flagged going concern doubts.
The term sheet includes an option for Vertical's founder, Stephen Fitzpatrick, to invest a further $25 million within the next year.
"By addressing our more immediate capital needs and positioning us well to secure funding for the long-term, we can focus on advancing our piloted flight test programme and bringing the VX4 to market," Fitzpatrick said in a statement.
In September, Vertical said it was in talks with Fitzpatrick about his investment commitment after a balance due on August 14 became outstanding.
Mudrick earlier this month served a default notice to Vertical on convertible senior secured notes due 2026 after the company warned it might breach certain covenants.
Under the term sheet unveiled on Monday, approximately $130 million of Mudrick's convertible notes will be converted into equity at $2.75 per share, Vertical said.
The agreement is subject to implementation, execution of final transaction agreements, and shareholder approval of amendments to Vertical's articles of association.
Vertical is among the several eVTOL makers aiming to revolutionize urban travel, but faces regulatory hurdles, battery limitations, and the challenge of convincing the public of their aircraft's safety.