I have covered FuelCell Energy (NASDAQ:FCEL) previously, so investors should view this as an update to my earlier articles on the company.

After the close of Friday’s session, ailing molten carbonate fuel cell power plant developer FuelCell Energy disclosed a new “at-market issuance sales agreement” (“ATM”) with B. Riley FBR (RILY) for the sale of up to 38 million common shares into the open market.

Photo: Fuel Cell Power

As discussed in my last article, the company is facing several near-term debt deadlines:

  1. NRG Energy construction loan: $4.1 million until October 31
  2. Generate Capital construction loan: $3 million until October 31, another $2 million until November 30 and the remaining $3 million until December 31
  3. Fifth Third Bank construction loan: $11.1 million if the company fails to secure at least $18 million in take-out financing until October 21.

Source: Company’s SEC-Filings, Author’s own work

In the offering prospectus, the company also disclosed “negotiations with various other lenders” which could result in further debt repayment requirements:

  1. Connecticut Green Bank credit facility: $1.8 million
  2. Enhanced Capital Connecticut Fund V loan: $1.5 million

I have revised my Q4/FY19 and Q1/FY20 cash walk estimates to account for the new ATM and the likely requirement to repay additional credit facilities ahead of maturity.

Assuming an average selling price of $0.30, FuelCell Energy would receive approximately $11.1 million in net proceeds. Please note that this estimate is likely on the high side given time pressure.

Source: Company’s SEC-Filings, Author’s own work

Should the company indeed be required to repay the above discussed, additional credit facilities, FuelCell Energy would likely run out of cash in early 2020 at the latest point. But even under a best case scenario, the new ATM would provide the company just one more quarter of leeway.

To sell even more shares into the market, FuelCell Energy needs to hold an extraordinary general meeting to gain shareholder approval for an increase in the number of authorized shares and to execute another reverse stock split by mid-January at the latest point as otherwise Nasdaq will likely decide to delist the company’s common stock. Expect a respective announcement at short notice.

Keep in mind that shareholders declined to approve a proposed increase in the number of authorized shares on the last annual general meeting.

In the prospectus, the company also warns investors of significant, additional financing needs. Currently, the ATM remains FuelCell Energy’s sole source of funding as even construction loan providers have started to pull out of existing agreements ahead of time.

So far, FuelCell Energy has avoided a bankruptcy filing by a mixture of expense reductions, delaying payments to trade creditors, the one-time licensing agreement with ExxonMobil and selling tens of millions of new shares into the open market.

But all these short-term life support measures have not addressed the company’s core problem: The lack of a viable business model.

Without access to capital at reasonable terms, FuelCell Energy won’t be able to deliver on its approximately $1.2 billion in project backlog and it is difficult to envision how the company could manage to attract new investors to a capital intensive, low-margin business with an unclear fate at this point.

Also keep in mind that the company has reduced manufacturing capacity by 90% to reduce operating expenses. A restart would likely require additional investment, particularly the re-hiring of discharged employees.

Bottom Line:

More dilution ahead for FuelCell Energy’s already badly stricken shareholders as the company has filed for another ATM. Unfortunately, even under a best case scenario, the additional funds will only provide the company one more quarter of leeway.

Given this issue, common shareholders need to prepare for the company to ask them to increase the number of authorized shares to at least 500 million and approve another reverse stock split at a yet to be scheduled extraordinary general meeting.

With no access to debt financing at reasonable terms, the company will be unable to deliver on its approximately $1.2 billion in backlog for the foreseeable future.

Common equityholders remain stuck between a rock and a hard place as they will either end up being diluted into oblivion or wiped out in bankruptcy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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