Mullen Automotive (NASDAQ:MULN) announced this morning that it has eliminated $13 million in debt, bringing its “overall indebtedness” to less than $10 million compared to over $30 million last year.
The debt reduction was related to an obligation with Esousa Holdings, a major shareholder of MULN stock. Furthermore, the debt conversion will save about $3.5 million in interest expenses per year. CEO David Michery added:
“It’s been a great year for Mullen Automotive; we’ve made tremendous strides on all fronts, including significantly improving our financial health. Continuing our goal of being debt-free is a main focus and provides us with a strong path forward for our EV innovation and programs, securing investor confidence and overall company health.”
Mullen did not disclose the exact process for eliminating the debt. However, Mullen mentioned that the debt was converted, which means that Esousa may have converted its $12.94 million of convertible promissory notes into shares of common stock.
MULN Stock: Mullen Eliminates $13 Million in Debt
The agreement with Mullen and Esousa, which is referred to as the “Exchange Agreement,” was enacted on Oct. 14. Under the agreement, Esousa could convert its notes at the “lowest daily volume-weighted average price in the 10 trading days prior to conversion” with a 5% discount.
Esousa received the notes after Mullen defaulted on a previous obligation. On June 30, Esousa exercised notes worth $27.61 million, or 28 million shares of common stock. These notes were received as part of an Original Note agreement. The note’s maturity dates were extended to July 23, 2024 in accordance with an Amended and Restated Secured Convertible Note and Security Agreement (A&R).
However, Mullen couldn’t fulfill the order due to limitations on authorized outstanding shares. The electric vehicle (EV) company was only able to fulfill 17.5 million shares. Therefore, it was 10.5 million shares short.
Therefore, the $12.94 million of notes that Esousa received was seen as a remedy to the default. As part of the exchange agreement, Esousa agreed to “cancel and extinguish and not seek to enforce any rights or interest in the A&R Note.”
Now, it seems that the fiasco with Esousa has come to a conclusion. Still, the conversion of the notes would signify that there are now more shares of MULN stock outstanding. That would dilute existing shareholders while lowering debt.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
