Magnis faces a debt covenant breach over its $100m New York gigafactory loan

The lenders to Magnis’ New York State gigafactory have called in the company over alleged breaches of covenants on a $100m loan.

Magnis' iM3NY plant was hit by delays in May 2022.

The lenders backing Magnis Energy Technologies’ New York-based battery gigafactory have warned the ASX-listed energy play it risks being found in breach of its borrowing covenants and may lose its assets.

In a notice to the market on Friday morning the lenders backing Magnis’ American battery factory subsidiary warned it may have breached six separate covenants on a $100m loan agreement.

They allege Magnis’ majority owned Imperium3 New York gigafactory, based in the upstate town of Endicott, owed millions of dollars to suppliers and in interest payments.

The revelation comes after days of suspension in Magnis’ shares over concern the company had dwindling financial reserves to back its battery factory play.

In a market update on Friday Magnis said Atlas Credit Partners Post Oak Credit had served it a notice of default alleging “various events” in relation to a $100m credit facility secured against iM3NY’s intellectual property.

Magnis had signed on with ACP Post Oak Credit in a loan brokered by Aon in April last year, refinancing its $50m loan with Riverstone, in a bid to finance the expansion of its iM3NY factory.

The loan was secured against the intellectual property provided to iM3NY from battery technology company Charge CCCV, with a series of milestones built into the deal that could trigger lower borrowing costs.

Charge CCCV, which is part owned by Magnis, has licensed its technology to Magnis and has given the firm exclusive rights to use it in North America.

Magnis chief executive David Taylor, right, toured iM3NY earlier this year.

Magnis said the default notice served on iM3NY alleges the company owes its lenders at least $US3.3m ($4.68m), claiming the business had failed to maintain adequate working capital in excess of agreed minimum levels.

The notice also alleges Magnis failed to seek the lender’s consent to vary the terms of its “engineering, procurement and construction arrangements”.

iM3NY is alleged to have defaulted on various milestone dates included in its loan deal with ACP Post Oak Credit, including the dates specified for production to commence.

Magnis announced in August last year it had begun production of cells at iM3NY. This was despite the factory originally being scheduled to open its doors in 2019.

The default notice also alleges iM3NY failed to pay its suppliers at least $US6.9m by the relevant due dates, and that more than half the machines at the factory were not “performing to specification”.

Sources told The Australian that Magnis’ current battery production system was hampered by the machines the company purchased from failed battery start-up Alevo in 2018 for $US5m.

Magnis added to the machines after purchasing equipment from lithium-ion cell maker A123 Systems in early 2021

Magnis told investors the lenders had warned “among other matters” they may “seek to enforce the security it has over the assets of the borrower” if no resolution is reached by 5pm on November 14, New York time.

“While the borrower has challenged the default notice on various grounds, the borrower is attempting to resolve the matter with the lender, including by seeking to procure alternative financing to finance the credit facility,” Magnis said.

But Magnis told shareholders there was “no certainty that a resolution acceptable to the lender will be reached” or that iM3NY would find “alternative financing on terms acceptable to the borrower (or at all)”.

Magnis said it did not provide guarantees or any form of financial surety in respect of the credit facility, noting if the lenders stepped in it could have a “material (albeit presently unquantifiable) adverse impact on the group’s FY2024 financial performance”.

“The company advises that in the event the lender enforces the security against the assets of the borrower, then that of itself would have no impact on the company’s solvency,” Magnis said.

At its latest set of results, Magnis revealed it had just 1.6 quarters of funding left, with $22m in cash set against a looming $15.6m in debt repayments.

These results were delayed after auditors offered a qualified opinion of iM3NY’s accounts.

Magnis declined to comment.