Is FuelCell Energy Running Out of Juice?

Shares of fuel cell maker FuelCell Energy Inc. (NASDAQ: FCEL) traded down almost 26% shortly after Wednesday’s opening bell. After markets closed on Tuesday, the company announced a secondary offering of 34.5 million shares priced at $6.50 a share, about 28% below the day’s closing price of $9.05.

The shareholders are now pricing FuelCell stock at the level that investment banks are content with is no big surprise. But why did the company accept (or was forced to accept) such a hit to the share price?

Partly the answer must rest in the details of the sale itself. FuelCell is selling just 19.8 million of the shares and selling shareholders are selling the remaining 14.7 million shares. The company expects gross proceeds of $128.8 million and the selling shareholders are expecting around $95.5 million in gross proceeds.

The selling shareholders are several funds owned by Orion Energy Partners, which opened an eight-year, $200 million credit facility to FuelCell Energy in November of last year. At the time of the announced credit line, Fuel Cell stock was trading at around $0.50 a share. FuelCell drew $80 million on the fund in late November 2019, and no additional funds had been drawn as of the company’s third-quarter 2020 earnings report.

According to FuelCell’s SEC filing, Orion owns 17.4 million shares of stock (about 5.9% of outstanding shares), of which it is selling 14.7 million at a profit of more than $6.00 per share. Orion will own 2.7 million shares in the form of exercisable warrants of FuelCell stock, less than 1% following the secondary offering.

FuelCell Energy said it plans to use net proceeds from the secondary offering to repay the outstanding balance on its credit facility with Orion and may use some of the net proceeds to redeem the principal price and accrued dividends on preferred stock issued by a subsidiary and to repay other outstanding debt. Any remaining funds would be used for further development of FuelCell Energy’s solid oxide platform, project financing, working capital support and general corporate purposes.

Either FuelCell Energy or Orion decided that repaying the $80 million secured debt now was required. The more likely scenario is that Orion wanted to take most of its cash out and FuelCell Energy couldn’t object too much.

The fuel cell sector is hotter than a $2 pistol right now. Since early November, FuelCell Energy shares have nearly tripled in value, even at $6.50 a share. At Tuesday’s closing price of $9.05, the stock was up more than four times the month-ago price.

FuelCell Energy shares traded at $7.34 just before noon on Wednesday, down about 18.7% for the day in a 52-week range of $0.48 to $11.31. The consensus price target on the stock is $2.50.

The most recent rating change on the stock came on November 19, when JPMorgan downgraded the shares from Overweight to Neutral.

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