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Workhorse share collapse raises pressure on debt repayment

Analysts cut estimates as focus returns to hobbled electric delivery van businesses

Workhorse Group is trying to find out what recourse it has after being passed over for the U.S. Postal Service contract for next-generation delivery vehicles. (Photo: Workhorse)

Workhorse Group Inc. (NASDAQ: WKHS) continued to lose investors Wednesday, a day after it was left out of a multibillion-dollar U.S. Postal Service contract to make next-generation mail delivery vehicles.

The Postal Service awarded a 10-year contract to defense contractor and off-highway equipment manufacturer OshKosh Truck Corp. (NYSE: OSK) on Tuesday. Day traders and several analysts felt the contract was Workhorse’s to lose.

Workhorse “intends to explore all avenues that are available to non-awarded finalists in a government bidding process,” according to a press release Wednesday.

Wednesday’s closing price of 15.13 was less than half Monday’s close of $31.34. It increases pressure on the company’s ability to repay its most recent $200 million loan due in 2024. Riding a wave of buying by day traders, Workhorse pegged the convertible debt to a share price of $36.14. That was a 35% premium at the time.  

Oshkosh traded higher for a second day Wednesday. Analysts began to price into their models the $482 million first tranche of the contract. Oshkosh will build 50,000 to 165,000 delivery vehicles and may get orders for more.

A looming debt crisis

Workhorse received approximately $194.5 million from the sale of the new notes in October after paying $5.5 million in placement commissions to Goldman Sachs and BTIG LLC. Now, the exchange price is more than $20 a share higher than Wednesday’s share price of $14.84.

“Given Workhorse missing the U.S. Postal Service contract entirely and facing a choppy supply chain situation due to COVID-19-related headwinds, we are stepping to the sidelines,” Oppenheimer & Co. analyst Colin Rusch said. “We believe the company’s convertible debt could prove cumbersome even with its maturity in 2024.”

Cowen Inc. analyst Jeffrey Osborne said he was “shocked” that Workhorse was passed over for the Postal Service contract. He cut his target price for Workhorse to $18 from $25.

“We had anticipated Workhorse would play a role, especially given the administration’s stance around government fleets being zero emission,” Osborne wrote in an investor note. “We likely have political variables at play here — a legacy Trump holdover as postmaster general of the USPS (Louis DeJoy) and two politically sensitive states (Wisconsin for Oshkosh and Ohio for Workhorse).”

Production woes

Workhorse has several thousand orders for its C-Series composite body electric delivery vans. But it lacks a track record for production. It built just seven vans in the third quarter and only a few more in the fourth quarter, according to comments by Chief Financial Officer Steve Schrader on a recent YouTube interview.

The company contracts Hitachi Capital America in building a sales network and Hitachi America Ltd. to advise on production efficiency at its plant in Union City, Indiana. On Feb. 3, Workhorse hired Chris Nordh as vice president of commercial development. Nordh had been senior director of advanced vehicle technology and energy products at Ryder System Inc. (NYSE: R).

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.