Why Nikola Stock Crashed Monday

After the company announced a new capital raise, shares of the electric truck start-up took a hit. At 1:06 p.m. The shares were down.

So what 

Antara Capital invested $200 million in the company. The influx of capital from the sale of convertible notes will go toward scaling truck manufacturing and tooling setup, which will accelerate the development of its hydrogen infrastructure, according to the company. The capital comes at a cost for both of them.

The image is from Nikola.

Now what

If paid in cash, the convertible notes will have an interest rate of 8%. The company has the option to pay the debt in the form of additional notes, but they have an interest rate of 11%.

The conversion price will be much higher than recent prices, but it is not yet known. It could be a 30% premium to the average for a time period between today's price and the closing of the transaction. If that is a lower value, it could be at a price more than double the closing price.

Either way, the price will be much above the current share price, but it will also hurt existing shareholders. As of March 31, the company had over 800 million dollars in cash and liquid assets.

If the money helps the company succeed over the long run, current shareholders will look back and think this was a smart move by management.

Howard Smith is employed by Nikola Corporation. The stocks mentioned have no position in The Motley Fool. There is a disclosure policy for The Motley Fool.