GM Loans Lordstown Motors $40M to Buy, Retool Plant
LORDSTOWN, Ohio – General Motors LLC has agreed to provide $40 million in financing to Lordstown Motors Corp. – enough to cover the company’s purchase of GM’s shuttered Lordstown Complex and some initial startup costs at the plant — according to legal documents filed late last week.
An open-end mortgage instrument filed in the Trumbull County recorder’s office Dec. 5 and dated Nov. 7 enables Lordstown Motors to borrow up to $40 million — up to $50 million if necessary — from GM. The startup company announced in November it had purchased the Lordstown plant. Repayment terms were not disclosed on the mortgage document.
Records from the Trumbull County Auditor show the plant and adjoining land – a total of five parcels — sold for $20 million. The transaction was recorded on Dec. 5.
GM also has an option to repurchase the plant and all transferred assets, and holds the option to lease 500,000 square feet of real property and another 400,000 square feet of land, according to a memorandum of options filed separately with the recorder’s office.
The lease options include a parking lot and a portion of a 45-acre corner lot on the east side of the plant that fronts state Route 45.
The option for GM to lease the facilities and land expires April 1, 2020, while the option to repurchase the assets expires May 30, 2020, indicating a tight timeframe for Lordstown Motors to retrofit the plant for production.
Moreover, the lease options carve out four parcels that could be combined with virgin land that GM either owns next to the plant or could buy in connection with its $2.3 billion joint venture with LG Chem to manufacture battery cells in or near the village of Lordstown.
The former GM Lordstown plant, a 6 million square-foot complex, once turned out nearly 300,000 vehicles a year.
During a news conference Nov. 14, executives leading Lordstown Motors Corp. said they wanted to begin production of an all-electric pickup, the Endurance, by the end of 2020. CEO Steve Burns said the company is seeking to raise more than $300 million and would soon begin an estimated six-month process to retool the plant, where the company also will be headquartered. Price point for the vehicle will be $50,000, he said.
Lordstown Motors has retained Gibbons Lang & Co., a Cleveland investment bank, to raise $450 million, Forbes reported Nov. 25. “The capital will be mostly equity but will also include a variety of debt instruments yet to be determined,” the magazine said.
Burns did not return a phone call seeking comment on the $40 million mortgage with General Motors and GM’s lease and repurchase options.
Contacted Friday by The Business Journal, GM spokesman James Cain confirmed the automaker structured the mortgage and option agreement to enable Lordstown Motors to start work while it is in the process of raising capital for the venture.
“We structured the terms of the sale to allow LMC to begin work at the plant without delay because they’re still in the process of their capital raise,” he said.
The mortgage agreement includes a provision that could extend Lordstown Motors’ financial from GM to $50 million.
Cain said the company expects Lordstown Motors to repay GM once it has raised sufficient capital for the project.
“They’re a startup company, and they’re undertaking an effort to raise the capital necessary to not just pay for the plant but to retool it and begin production,” he said.
In the meantime, GM has the right to exercise its options over the next six months to reacquire the plant, according to the option document. “We don’t expect to exercise our right to reacquire the plant,” he added.
Indeed, the entire reason behind selling the plant to Lordstown Motors was because the company presented the best plan to return vehicle production to the site, according to Cain.
There were other proposals GM received for the plant, he noted, but many of them were not related to vehicle production. The spokesman declined to be specific.
The sale of the Lordstown complex to Lordstown Motors presented a unique set of circumstances to GM, Cain said. “In most instances where assembly plants have closed, they have been repurposed for other uses, not vehicle assembly,” he said.
GM has repeatedly said that it is not an investor in Lordstown Motors or a related company, Workhorse Group, based in Mason, Ohio.
At a press conference Dec. 5 announcing the joint venture between GM and LG Chem to build a $2.3 billion electric vehicle-battery manufacturing plant in or near the village Lordstown, GM CEO Mary Barra reiterated there was no financial interest between GM and Lordstown Motors.
“We hope that they are very successful in this commercial vehicle that they’re going to be putting into the marketplace, but we don’t have any formal relationship other than we’re very supportive of wanting them to be successful,” Barra said.
When asked if there was any financial interest or joint development initiatives between GM and Lordstown Motors, Barra replied: “No. Right now they have their own plan and their own supply base and their own strategy and they’re executing to that. We’re looking forward to their success.”
Cain clarified that Barra interpreted the question as to whether GM was an investor in Lordstown Motors, since that question has been asked so often. “It’s been something that has been speculated and reported on, but it’s never been part of the plan to be an investor,” he said.
Cain said the company could not discuss whether Lordstown Motors has drawn down on the mortgage.
Nor would Cain comment on whether the lease options on the land and parking lot could be a potential location for the new battery plant.
“We haven’t finalized the site plan for the battery plant. It’s not anything we’re ready to announce yet,” he said.
The battery plant is expected to create 1,100 jobs with a groundbreaking anticipated for mid-2020.
Meanwhile, recent land transactions suggest activity around related to new manufacturing operations at the plant site.
A deed filed Oct. 15 shows that transportation giant Old Dominion Freight Line Inc., based in Thomasville, N.C., acquired 15.2 acres from NP Lordstown 173, an affiliate of NorthPoint Development.
NorthPoint purchased 173 acres northeast of the Lordstown plant from GM after its 2010 bankruptcy with the intent to lure additional automotive-related development to the site.
Old Dominion paid $950,000 for the 15 acres, documents show. The trucking company operates a facility at 1730 N. State St. in Girard – one of the 235 service centers it operates in Canada, Mexico, Europe and China, according to the company’s website.
Speculation has also centered on land just northwest of the plant along Ellsworth-Bailey Road – more than 200 acres mostly owned by the Norfolk Southern railroad.
According to sources, the battery plant project would require at least 230 acres – and two sites contiguous to GM’s former Lordstown assembly plant would meet virgin land requirements. The NorthPoint land is adjacent to the parking lot parcels GM has the option to lease as well as parcels the automaker still owns. The Norfolk Southern land is also adjacent to a parcel that GM has reserved the right to lease.
Presumably GM and LG Chem would determine within six months – before the lease/purchase option expires, whether either site would be selected for construction of the battery plant
In November 2018, GM announced that it would cease production of the Chevrolet Cruze in March 2019 and placed the Lordstown plant on “unallocated” status. On March 6, the final Chevrolet Cruze – the single product built at the plant – rolled off the line. About 1,500 workers lost their jobs when the plant closed. Previously, another 2,000 workers were placed on layoff when the company announced the cancellation of the third and second shifts.
About 1,000 of those who lost their jobs when the plant closed have been transferred to other GM plants across the country, while another 500 declined offers to relocate.
This fall, after a month-long strike by the UAW, GM formally announced it would close the plant and sell the facility to Lordstown Motors.
Cain said projects such as the $2.3 billion battery plant and GM’s support of Lordstown Motors represents a broad commitment to not just the Mahoning Valley, but Ohio.
“All of those things together make it pretty clear that we’ve been trying to do the right thing for our business but also the right thing for the Mahoning Valley and the state of Ohio as a whole,” he said.
Copyright 2020 The Business Journal, Youngstown, Ohio.
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