EOS Energy recharges
EOS Energy Enterprises, a suddenly hot maker of batteries for energy storage, returned to the equity-linked market Wednesday to refinance a convertible bond issued just five months ago, taking out holders at a massive premium and using their unwind of short positions to support a concurrent sale of shares.
While the cost of taking out the bonds was high, the new CB has a far lower running cost and the refinancing crystallises dilution from a bond that is deeply in the money.
Goldman Sachs, Jefferies and Stifel were joint bookrunners on the pricing of the new six-year CB on Wednesday at a 1.75% coupon and 27.5% conversion premium, the investor-friendly ends of 1.25%–1.75% and 27.5%–32.5% price talk. The banks were able to upsize from the US$500m base deal despite the wide-end pricing to US$525m plus a US$75m greenshoe.
Simultaneously, EOS raised US$458.2m by selling 35.9m shares priced at the US$12.78 Wednesday closing reference price via a registered direct offering.
In the third leg of this financing, the company repurchased US$200m principal of its 6.75% CB issued in June that is convertible at US$5.10, taking out those holders for US$564.6m in a combination of cash and stock.
“The registered direct offering allowed holders to roll into the new CB and cover their shorts on the existing bond,” said one banker involved in the offering. “For EOS, the financing equitises their balance sheet.
“You have to remember that there is a captive audience.”
The captive audience is the existing CB holders who purchased the stock, closed out a portion of shorts and rolled over residual into the new deal, banking a hefty profit in the process.
That should leave the underlying shares undisturbed, though EOS’ shares fell 5.2% on Wednesday to US$12.78.
Registered
The RDO is necessary because the existing CB is so new (less than six months) that any treasury shares delivered would be unregistered, making it problematic for arbitrage accounts to close out their shorts.
EOS’ equitisation was aided earlier in the week when investors exercised warrants to purchase 6.7m shares, resulting in US$76.9m of gross proceeds raised. The warrants are a legacy of EOS’ merger with a SPAC in 2021.
A lot has changed since EOS issued the 6.75% CB in June.
In July, the company drew down US$22.7m on a US Department of Energy loan to take borrowings on the loan to US$90.9m. The loan covers 80% of the expected costs to expand a zinc battery plant in Pennsylvania.
In October, EOS signed a collaborative agreement with renewable power producer MN8 Energy to deploy its zinc batteries to support up to 750 MW of power, including an initial commitment for 200MW.
Also in October, UK energy developer Frontier Energy agreed to purchase 228MW of EOS’ zinc batteries, triggering a milestone payment from Cerberus Capital Management as part of an earlier investment.
EOS’ backlog as of September 30 swelled to US$644.4m, with the company expecting 2025 revenue of US$150m–$160m and annualised production capacity to triple to 2GW by the end of the year.
That operational uptick has analysts projecting EOS will pump out US$190m of Ebitda in 2027, after losing US$314m this year, according to LSEG data.