UK-based Vertical Aerospace and its largest debt holder Mudrick Capital have entered into a definitive agreement over the firm’s refinancing, including $50 million in new funding, following shareholder approval for the deal.
Received at an extraordinary general meeting on 23 December, shareholder assent for the agreement – first disclosed on 25 November – marks a significant step to strengthening Vertical’s balance sheet.
Under the deal, Mudrick will convert $130 million of debt into equity at $2.75 per ordinary share and has fixed the price for its remaining $130 million in floating convertible notes at $3.50 per share.
In addition to reducing its debt, the setting of a conversion price for the remaining notes makes it easier to attract further outside investment, Vertical argues.
While that theory will be tested when Vertical embarks on its next capital raise early in 2025, Mudrick has agreed to inject $25 million into the business and backstop a further $25 million, reducing the immediate need for outside investors.
The next funding round is expected to close in the first quarter, it says; the guaranteed $50 million will provide sufficient cash runway until the end of 2025.
Vertical founder Stephen Fitzpatrick – previously its largest shareholder until the deal with Mudrick – also has an option to contribute $25 million in the next investment round, or over the following 12 months.
The debt-for-equity swap sees Mudrick assume a 71% stake in Vertical.
Changes to the company’s governance structure were also agreed at the EGM, establishing a majority of independent board directors and granting Mudrick representation on the board proportional to its shareholding.
Despite Vertical’s self-proclaimed “industry-leading capital efficiency”, the pressing need to secure further investment is laid bare in its third-quarter accounts, released on 20 December.
At that point, the company held approximately £25 million ($31 million) of cash and cash equivalents, down from £42.8 million at the end of September.
Without the committed investment from Mudrick, the accounts state “we currently project that our existing resources will only be sufficient to fund our ongoing operations into, but not longer than, the first quarter of 2025.
“We require additional capital to continue to fund our ongoing operations beyond that point.”
Additionally, Vertical has had to seek a separate agreement with Mudrick related to a covenant that requires the aircraft developer to maintain at least $10 million in cash – a level that is likely to be breached during the first quarter if additional capital is not raised.
If that happened, it would have allowed Mudrick to advance the maturity of its loan notes – essentially calling that loan in – “and/or may cause the company to declare insolvency and file for bankruptcy, or be forced into involuntary bankruptcy proceedings”, Vertical states.
However, the “forbearance agreement” signed on 15 December, sees Mudrick commit to non-enforcement of any breach until at least 1 February 2025.
In the nine months to 30 September, Vertical’s operating loss stood at £42.9 million, an improvement on the £74.5 million recorded a year earlier.
Vertical is developing its VX4 eVTOL aircraft for service entry in 2028. Flight tests of the company’s second prototype are ongoing in the UK.
