Why is the Magnis Energy share price crashing 57% on Friday?

Things aren't looking good for this battery technology company's majority owned business.

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The Magnis Energy Technologies Ltd (ASX: MNS) share price is ending the week deep in the red.

At one stage today, the lithium-ion battery technology and materials company's shares were down as much as 57% to 3.5 cents.

They have recovered a touch since then but remain down 43% at 4.6 cents.

What's going on with the Magnis Energy share price?

Investors have been hitting the sell button in a panic today after the company released an update on its iM3NY loan facilities.

The operator of the 73%-owned iM3NY business, CCCV, has a US$100 million senior secured term loan credit agreement with Imperium New York.

It has been served with a notice of default from the lender, alleging that various events of default have occurred in relation to the credit facility.

This includes a failure to maintain working capital in excess of an agreed minimum level and a failure to seek the lender's consent to vary the terms of the engineering, procurement and construction arrangements.

In addition, the missing of production deadlines and the failure to pay at least US$3.3 million under the engineering, procurement and construction arrangements and approximately US$6.9 million in third party trade payables by the relevant due dates are also reasons given.

A final reason is the allegation that approximately 50% of the equipment at the Battery Facility is not performing to specification.

What now?

The company advised that the lender has stated that it may seek to enforce the security it has over the assets if an acceptable resolution has not been reached by 5pm (New York time) on 14 November 2023.

And while the operator of iM3NY has challenged the default notice, it is also attempting to resolve the matter. This includes by seeking to procure alternative financing to refinance the credit facility.

How will this impact Magnis Energy?

The company has explained what impact it could have on its operations. And while it expects to remain solvent even in the worst-case scenario, it hasn't stopped investors selling down the Magnis Energy share price today. It advised:

While neither the Company nor any of its other subsidiaries (i.e. other than iM3NY and/or the Borrower) guarantees or provide any other form of financial surety in respect of the Credit Facility, the enforcement of the Lender's security against the assets of the Borrower (and others, including iM3NY and C4V) may have a material (albeit, presently unquantifiable) adverse impact on the Group's FY2024 financial performance and condition if a resolution with the lender is not reached.

The Company advises that in the event the Lender enforces the security against the assets of the Borrower, then that of itself would have no impact on the Company's solvency. The Company draws attention to the statement made in the recent September 2023 quarterly cash flow statement that the directors are engaged in seeking additional capital from the debt and equity markets and believe these efforts are more likely than not to be successful.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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