What happened
It's not uncommon for a company's share price to drop when it announces a capital raise. But that's not how Fisker (NYSE: FSR) shares are reacting Monday. The electric vehicle (EV) start-up jumped by as much as 5.2% Monday morning and was trading higher by 4.5% as of 11:35 a.m. ET.
So what
Early Monday, Fisker announced it would be raising at least $300 million by issuing convertible notes to an institutional investor at a discount. At first glance, that looks like it would be a negative development for existing shareholders, but there's much more to unpack here.
Now what
The notes come at a 12% discount for the buyer, but carry a 0% interest rate. That's one reason investors are bidding up the stock Monday -- the capital raise won't result in any interest payments for Fisker.
The notes can be converted to common stock at the initial price of $7.80 per share. Given that the stock closed last week at $6 per share, that allows for a 30% upside before there is any dilution to current shareholders.
Also of interest is the fact that the institutional investor could opt to double its investment, bringing even more capital to Fisker. But what really has investors calm about the capital raise is simply the fact that Fisker is raising money even though it doesn't really need to at this time.
The company recently began producing and delivering its first model -- the Ocean SUV. And Fisker reported having $652.5 million of cash and equivalents on its balance sheet as of March 31. While it will be making capital expenditures to expand its business and prepare to launch a second model, Fisker's use of a contract manufacturing partner gives it a somewhat capital-light business model.
Investors have yet to see how the Ocean EV will perform in the market over time. But long-term success for Fisker will require more capital. In that context, the company's ability to raise funds before it really needs to is a positive, and that's what's driving investor optimism Monday.
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